Severance payment is a financial compensation that an employer provides to an employee upon termination of employment under specific conditions. It is most commonly paid in cases of redundancy, retirement, or mutual agreement to terminate the contract. The amount of severance depends on the employee’s length of service, salary, and the applicable regulations in a given country or sector. The purpose of severance pay is to help employees transition into a new phase of life or a period of unemployment. The right to severance is regulated by labor laws and collective agreements, and its payment is a legal obligation for employers in prescribed situations.
If severance is paid at the minimum prescribed amount, there is no obligation to pay personal income tax or contributions.
If the severance exceeds the legally prescribed minimum, the excess amount is subject to a 20% tax on other income, without recognition of standardized costs and without the obligation to pay contributions. Specifically, the taxable income earned by an individual from severance payments above the non-taxable threshold is calculated as the difference between the total severance received and the non-taxable amount, increased by the associated liabilities borne by the recipient.
When paying severance, it is essential to be aware of your legal obligations.
Tax International LLC is here to help you correctly calculate and report severance payments, ensuring compliance and security for your business.
With our support, you can be confident that all payments align with current regulations!
Tax International offers the following services:
Accounting services
Tax consulting
Company and business registration
Payroll calculation
Freelance tax calculation
Issuing invoices and similar administrative tasks
We provide both online and onsite services.
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For all our clients, consultations regarding reimbursement of employee expenses are completely free.
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