Redundancy and tax in Ireland: what is tax-free and how the exemptions work

Redundancy pay comes in two parts, and the tax treatment of each is different. The statutory sum is not taxed at all. Anything above it is an ex gratia payment, and Revenue taxes it after an exemption that depends on your service, your pay and your pension. The arithmetic is set out in Revenue's lump sum guidance and is worked through here with the 2026 figures.

Part one: the statutory sum is tax-free

The statutory redundancy lump sum under the Redundancy Payments Acts 1967 to 2014 is free of income tax, USC and PRSI. It does not matter how large it is: two weeks' pay per year plus one bonus week, at a weekly pay capped at €600, is paid gross and stays gross.

It also does not use up any of the exemptions described below. The exemptions apply only to the ex gratia part, so a €12,600 statutory sum and a €20,000 ex gratia payment are treated as two separate things: the first is untaxed, the second is tested against the exemption on its own.

The calculator explainer sets out how the statutory sum itself is worked out.

Part two: what counts as ex gratia

An ex gratia payment is anything your employer pays because you are losing your job that it was not legally bound to pay. The usual examples:

• an enhanced redundancy package (for example four weeks per year instead of two);
• a lump sum in a settlement agreement;
• a payment for loss of office.

Some payments look like ex gratia but are taxed as ordinary pay, with no exemption:

• pay in lieu of notice where your contract provides for it;
• holiday pay;
• arrears of wages, bonuses and commission;
• payments under a restrictive covenant (a non-compete clause).

If your employer bundles these together, ask for them to be shown separately on the payslip so the exemption is applied only where it belongs.

The three exemptions

Revenue allows the highest of three figures to be paid tax-free out of the ex gratia amount. All three use complete years of service; a part year does not count here, unlike the statutory calculation.

1. The Basic Exemption

€10,160, plus €765 for each complete year of service.

Ten complete years: €10,160 + (10 × €765) = €10,160 + €7,650 = €17,810.

Everyone gets at least this.

2. The Increased Exemption

The Basic Exemption plus up to €10,000 more. It is available only where you have not received a tax-free lump sum from a pension scheme, are not entitled to one, and have not claimed the Increased Exemption in the previous ten years. Where you are entitled to a tax-free pension lump sum from the employer's scheme, the extra €10,000 is reduced by the amount of that lump sum.

Ten complete years, no pension lump sum: €17,810 + €10,000 = €27,810.

3. The SCSB (Standard Capital Superannuation Benefit)

Your average annual pay over the last three years of service, multiplied by complete years of service, divided by 15, less any tax-free pension lump sum you have received or are entitled to.

Ten complete years, average pay €45,000: (€45,000 × 10) ÷ 15 = €30,000.

The SCSB tends to be the largest exemption for people with long service and higher pay. For shorter service on modest pay the Increased Exemption often comes out ahead.

A worked example

You have 10 complete years' service, earned an average of €45,000 a year over the last three years, and have no pension lump sum. Your employer offers a package of €47,600: the statutory sum of €12,600 (21 weeks × €600) plus an ex gratia payment of €35,000.

You receive €12,600 tax-free, €30,000 of the ex gratia payment tax-free, and €5,000 taxed at your marginal rate with USC. Tax-free in total: €42,600 of a €47,600 package.

A second example with shorter service: 5 complete years, average pay €40,000, no pension lump sum, ex gratia offer of €20,000.

• Basic Exemption: €10,160 + (5 × €765) = €13,985.
• Increased Exemption: €13,985 + €10,000 = €23,985.
• SCSB: (€40,000 × 5) ÷ 15 = €13,333.
• Best exemption: Increased Exemption, €23,985. The whole €20,000 is tax-free.

The redundancy calculator runs these three figures from your own numbers.

The €200,000 lifetime cap

Since 2011 the total amount of ex gratia redundancy or retirement payments you can receive tax-free over your lifetime is capped at €200,000. If an earlier redundancy used part of the cap, the remainder is what is left for this one. Most people never reach it, but anyone with a very large package or a second large redundancy should ask the employer to confirm the position with Revenue before the payment is made.

Pension lump sums and the exemptions

The interaction with your pension is where people most often lose part of the exemption.

• The Increased Exemption is not available at all if you have taken a tax-free lump sum from a pension scheme, and is reduced by the value of any tax-free lump sum you are entitled to from the employer's scheme, even if you have not taken it yet.
• The SCSB is reduced by the same tax-free pension lump sum.
• The Basic Exemption is not affected.

You can waive your right to the tax-free pension lump sum in order to keep the full Increased Exemption or SCSB. Whether that is worth doing depends on the size of each figure and on your retirement plans; it is a decision for a regulated financial adviser or a solicitor, not for a calculator. The employer will usually ask you to sign a form confirming your choice before it runs payroll.

Top-slicing relief is gone

Older guidance refers to top-slicing relief, which taxed the taxable part of a lump sum at your average rate over the previous three years rather than your marginal rate. It was abolished for payments made from 1 January 2014. If a calculator or an article mentions it, the figures are out of date. The taxable remainder is now taxed at your marginal rate in the year of payment, with USC, and no PRSI on the ex gratia element.

How the employer applies it on payroll

Your employer applies the exemption through payroll when it pays the lump sum. It should:

1. Show the statutory sum separately, untaxed.
2. Work out the Basic Exemption, the Increased Exemption (where it applies) and the SCSB, and use the highest.
3. Tax only the part of the ex gratia payment above that figure, at your marginal rate, with USC.
4. Report the payment to Revenue in the normal payroll submission.

The employer needs to know whether you have had a tax-free pension lump sum, and whether you have claimed the Increased Exemption in the last ten years, so expect a short form. If the employer taxes the whole ex gratia amount without applying the exemption, you can claim the overpaid tax back from Revenue through myAccount after the end of the year; the payment will show on your employment detail summary.

Social welfare and the tax year

A large ex gratia payment does not affect Jobseeker's Benefit, which is PRSI-based rather than means tested, but it can affect Jobseeker's Allowance, which is means tested. The lead guide has the social welfare section. If the redundancy falls late in the year and you are not working again before 31 December, you may also have unused tax credits for the year, which can produce a refund on the taxed remainder; Revenue's end-of-year process through myAccount handles that.

Voluntary redundancy and settlement sums

Voluntary redundancy is still redundancy: the statutory sum is still tax-free and the enhanced part is still an ex gratia payment with the same three exemptions. The voluntary redundancy guide sets out what to check. A lump sum paid under a settlement agreement is treated the same way, provided it is a payment for loss of office and not disguised pay, which is why the agreement should state what each part of the sum is for.

Where this leaves you

The redundancy calculator gives you the statutory sum, then takes your ex gratia offer, your complete years and your average pay and shows the Basic Exemption, the Increased Exemption and the SCSB side by side, with the taxable remainder. Where a pension lump sum is in play, or the package is large enough to approach the €200,000 cap, the right choice depends on your own position and a solicitor or a regulated financial adviser should look at it; the enquiry page explains how that works on this site.