Redundancy in Ireland: How Much of Your Payout Is Actually Tax-Free?
Being made redundant is stressful enough without also working out how much of your payout Revenue is going to take. The good news: a meaningful chunk of most redundancy payments in Ireland is tax-free by law — but almost nobody gets the full exemption automatically, because it has to be calculated and claimed correctly. There are three separate exemptions, you're entitled to whichever is largest, and your employer isn't obliged to work out all three and give you the best one. That's the gap this guide is about.
Statutory redundancy is always tax-free
If you qualify for statutory redundancy — broadly, at least 104 weeks of continuous service — you're entitled to two weeks' pay per year of reckonable service, plus one additional week, with weekly pay capped at €600 gross. Anything you earn above €31,200 a year is disregarded for this calculation.
This entire amount is exempt from Income Tax, USC and PRSI. No claim is needed and nothing is deducted.
The arithmetic is straightforward. Ten complete years of service gives you (10 × 2) + 1 = 21 weeks. At the €600 cap, that's €12,600, tax-free, regardless of whether you were earning €35,000 or €135,000.
Two details worth knowing: part years round down — 9 years and 8 months counts as 9 — and statutory redundancy is calculated on reckonable service between the ages of 16 and 66.
Revenue's guidance on the taxation of the rest sits on its lump sum payments page.
Ex-gratia payments are where it gets more complex
Many redundancies come with an additional ex-gratia lump sum on top of the statutory amount. That part is taxable income in principle — but Revenue lets you shelter it using whichever of three exemptions gives you the largest figure.
1. Basic Exemption. €10,160, plus €765 for every complete year of service. Part years give you nothing. Statutory redundancy isn't counted in this — it's exempt separately and simply ignored.
2. Increased Exemption. The Basic Exemption plus a further €10,000. Two conditions attach, and the second is where the existing advice you'll read online tends to go wrong:
You must not have received a termination payment in excess of the Basic Exemption in the previous ten tax years. On the pension side, you either have no entitlement to a tax-free lump sum from an occupational pension scheme, or you irrevocably give up that right — or the €10,000 is reduced by the current value of the pension lump sum you've received or are entitled to receive.
That last point matters. It is not a simple yes/no. If your pension scheme lump sum entitlement is €4,000, you don't lose the Increased Exemption — you get €6,000 of it. You only lose it entirely once that entitlement reaches €10,000 or more.
3. SCSB (Standard Capital Superannuation Benefit). Your average annual pay over the last 36 months of service, multiplied by your complete years of service, divided by 15, minus any tax-free pension lump sum received or receivable:
(Average annual pay × complete years of service) ÷ 15 − pension lump sum
"Pay" here means total emoluments — salary plus bonuses and benefits in kind, not just base salary. That's frequently understated, and it understates the exemption with it.
The SCSB usually wins for people with long service, high earnings, or both. The Basic or Increased Exemption usually wins for shorter service. There's no way to know which applies to you without running all three.
All of this is subject to a lifetime limit of €200,000, covered further down. One more thing that's easy to miss: these reliefs don't apply to payments you were contractually entitled to. If something is in your contract, it's treated like salary. The relevant residence and reporting background is in the complete guide.
A concrete example
Scenario one — the SCSB covers everything.
Say you've worked for the same employer for 12 complete years, earning an average of €48,000 a year over your last three years, and you receive an ex-gratia payment of €35,000 on top of your statutory redundancy.
| Exemption | Calculation | Amount |
|---|---|---|
| Basic | €10,160 + (€765 × 12) | €19,340 |
| Increased | €19,340 + €10,000 | €29,340 |
| SCSB | (€48,000 × 12) ÷ 15 | €38,400 |
The SCSB is the largest, and at €38,400 it exceeds the entire €35,000 payment. Nothing is taxable.
Scenario two — the SCSB loses, and there's a bill.
Now say you've worked six complete years, your average pay over the last three was €40,000, and your ex-gratia payment is €40,000.
| Exemption | Calculation | Amount |
|---|---|---|
| Basic | €10,160 + (€765 × 6) | €14,750 |
| Increased | €14,750 + €10,000 | €24,750 |
| SCSB | (€40,000 × 6) ÷ 15 | €16,000 |
Here the Increased Exemption wins — assuming you meet both conditions above. Your taxable amount is €40,000 − €24,750 = €15,250.
That €15,250 is subject to Income Tax at your marginal rate and USC. It is not subject to PRSI — qualifying termination payments never are. If your employer had simply applied the Basic Exemption without checking, you'd have been taxed on €25,250 instead: €10,000 more, which at the higher rate plus USC is a meaningful sum for someone who has just lost their job.
Notice that the exemption which wins flipped between the two scenarios. That's the whole point of running all three.
What you need before you sign
Get these confirmed in writing before you accept anything. Most of them are much harder to obtain after you've left.
- A written breakdown separating statutory redundancy from the ex-gratia payment. These are taxed completely differently and a single combined figure tells you nothing.
- Your complete years of service, confirmed by your employer, with the start date they're using.
- Your total emoluments for the last 36 months — including bonuses and benefits in kind, not just base salary. This drives the SCSB.
- Details of any pension scheme lump sum you've received or are entitled to receive, and its current value.
- Confirmation of whether you've claimed a termination exemption in the previous ten years, from this or any employer.
- Which exemption your employer has applied, and their calculation. Ask directly. "It's been calculated by payroll" is not an answer.
- Any retraining costs the employer is covering. Where an employer pays for retraining as part of a redundancy package, up to €5,000 of that cost can be exempt, subject to conditions.
If you'd rather have someone run all three exemptions and check the figures before you sign rather than after, that's exactly what our Termination Review does. Reviewing a package while it's still negotiable is worth considerably more than reviewing it afterwards.
The €200,000 lifetime limit
These exemptions aren't unlimited. There's a lifetime cap of €200,000 on the ex-gratia amounts you can shelter across all termination payments in your working life.
If you use €200,000 of exemption on one redundancy, later termination payments are fully taxable. If you use part of it, the remainder carries forward — so a €93,333 exemption claimed now leaves €106,667 available for the future.
Statutory redundancy sits outside this cap. It's exempt in its own right and doesn't consume any of your €200,000.
If you're married or in a civil partnership, your entitlement to these exemptions is calculated independently of your spouse, whether you're jointly assessed, separately assessed or separately treated.
What to do if you're facing redundancy
Before you sign anything:
- Ask which exemption has been applied and how it was calculated. Employers commonly default to the Basic Exemption because it's the simplest to compute. If nobody has run the SCSB, and you have long service or high earnings, you may be leaving thousands behind.
- Check the pay figure used for the SCSB. If it's base salary only and you had bonuses or benefits in kind, the exemption is understated. Your payslips are the source for that figure, and knowing which lines make up your total emoluments is worth ten minutes — see how to read your Irish payslip.
- Think about the pension interaction before deciding. Waiving a pension lump sum to unlock the Increased Exemption or improve the SCSB is a real trade-off with your retirement position, not just a tax calculation.
- Don't expect Top Slicing Relief. It used to cap the rate applied to termination payments at your average rate over the prior three years, and people still ask about it — but it was abolished and is not available.
- If you're leaving the country afterwards, the year of your redundancy is very often also a part-year of employment, which is its own refund situation on top of this — see leaving Ireland and the refund you might be owed.
Questions we get asked
My employer only applied the Basic Exemption. Can I still fix it?
Usually yes. If a larger exemption was available and wasn't applied, the overpaid tax can be reclaimed by filing an Income Tax Return for that year, within the normal four-year window. You'll need the payment breakdown and your 36-month pay history to support the SCSB calculation.
Does my redundancy payment count as income for other reliefs?
The exempt portion isn't taxable income, so it doesn't create tax capacity. The taxable portion does form part of your income for the year, which can affect your rate band position — and because a redundancy year is often a part-year of employment, it's frequently a year with unclaimed credits sitting in it.
I'm leaving Ireland after being made redundant. Does that change the calculation?
Not the exemption calculation itself. But it very likely creates a second, separate refund: you'll have had a full year's tax credits applied against a part year's earnings. Both should be handled in the same return for that year.
Is payment in lieu of notice part of the ex-gratia amount?
It depends on your contract, and this one is worth checking carefully. If PILON is a contractual entitlement, it's treated as normal income and doesn't qualify for these reliefs. If it isn't in your contract, it can form part of the termination payment and fall within the exemptions. The wording in your contract decides it.
Do I have to do anything if the whole payment is covered by an exemption?
Your employer applies the exemption through payroll, so there may be nothing to pay. It's still worth reviewing the year — a redundancy year is rarely a full year of earnings, and that's where refunds hide.