Here are useful guides to redundancy payment:
http://www.revenue.ie/en/tax/it/leaflets/it21.htmlhttp://www.welfare.ie/EN/Schemes/Redund ... yments.pdfhttp://www.welfare.ie/EN/Schemes/Redund ... tions.aspxRedundancy payments and taxFrom Welfare.ie:
A statutory redundancy lump sum, which under the law must be paid, is entirely tax-free. Only a payment above and beyond the statutory payment (an ex-gratia payment) is taxable, but only when it goes over a certain limit. For further information on this, callers should be referred to the Central Telephone Information Office of the Revenue Commissioners at 1890 60 50 90.
Redundancy Payments and PRSI(Source:
http://www.welfare.ie/EN/Publications/S ... tends.aspx)
Certain lump sum payments made to employees when they leave their employment are not reckonable earnings for PRSI purposes. Examples of such payments are redundancy payments, gratuities or ex-gratia lump sum payments and payments in lieu of notice to an employee when they retire or leave their employment (see Revenue's information leaflet IT21 Lump Sum Payments on Redundancy/Retirement regarding the tax treatment of such payments).
However, a Health Levy (Class K contribution) is paid on the lump sum payment, or part of such a payment, that is treated as pay for income tax purposes.
Redundancy Payments and USC(Source:
http://www.revenue.ie/en/tax/usc/univer ... e-faqs.pdf)
1.11 Will redundancy payments be subject to the charge?
Statutory redundancy payments are exempt from the charge. Statutory redundancy payments amount to 2 weeks pay per year of service plus a bonus week subject to a maximum payment of €600 per week.
In addition, ex-gratia redundancy payments in excess of the statutory redundancy amount are exempt from income tax, and therefore also the Universal Social Charge, up to certain limits. These limits are up to €10,160 plus €765 per complete year of service in excess of the statutory redundancy. This basic exemption can be further increased by up to €10,000 if the person is not a member of an occupational pension scheme. There is a lifetime tax exempt limit of €200,000 on ex-gratia payments.
Any relevant emoluments paid which are in excess of these limits are subject to the Universal Social Charge. It should be noted that the charge applies after granting the statutory exemptions set out above, and after granting any additional deduction for Standard Capital Superannuation Benefit (SCSB).
Processing Redundancy through PaybackIf you are only paying the statutory tax free lump sum, create a new element in the Payroll screen for the employee.
Type 'Stat Redundancy' (or other suitable description) in the description column
Click the 'More>>' button at the top right of the elements grid
Untick USC, PRSI, Pens and Tax.
For an amount of €10000 It should look like this:
Code:
Description Amount Tax PRSI USC Pens
Stat Redundancy 10000 N N N N
If you are also paying taxable redundancy, add another element in the Payroll screen for the employee.
Type 'Taxable sum' (or other suitable description) in the description column
Click the 'More>>' button at the top right of the elements grid
Tick USC, PRSI and Tax.
For an amount of €5000 It should look like this:
Code:
Description Amount Tax PRSI USC Pens
Stat Redundancy 10000 N N N N
Tax Lump Sum 5000 Y Y Y N
Please note that for tax issues such as this you should always consult your accountant or tax advisor before processing payments to determine if payments are liable to USC, Tax and PRSI. Tax rules are also liable to change.