Redundancy: Incorrect calculation costs employee €16,000 in Tax
Posted on | April 8, 2010 | No Comments
How easy it is to overpay tax on Redundancy. In the last few weeks we have have a number of examples of how bad Tax on redundancy can go badly wrong. Make sure you are not overpaying too. Here’s one example:
Large Redundancy payment, with tax deducted by employer at source. Tax Overpaid €16,000 +
There is an assumption abroad that mickey mouse small employers make mistakes with pay and tax, while the larger employer with all their resources get it right. Not the case at all – most companies don’t have a large department full of people with experience in dealing with redundancies. With any situation that is so new, mistakes can happen whether you are big or small.
James Q worked for the Irish subsidiary of a large multinational. After fourteen years working with this company he took advantage of a redundancy. Out of a redundancy payment of roughly €90,000, he paid tax and levies of €17,000, receiving a net €73,000.
James used the Red Oak Tax Refund Redundancy Calculator to check if he was due Top Slicing Relief, hoping to get a portion of his taxes back. But from using the calculator, he couldn’t reconcile the tax initially deducted from his redundancy: The numbers just didn’t add up, so he asked us to look into this.
James is a very clued-in customer and after a thorough examination of his redundancy payment we were confident that his employers initial calculations were incorrect. One of the components used in the Calculation of his redundancy exemptions was incorrect and this resulted in tax (including PRSI & levies) being calculated at about €17,000 when it fact his full tax bill should have been less than €1,000.
Revenue have since confirmed this error and we now understand from discussions with his former employer how they made the mistake.
How this can be detected:
The Employer’s calculations were checked by the external Actuarial consultants. But they could not have detected this error, as the calculations were correct, only one of the initial inputs was wrong. so the incorrect tax figure was signed off on by them and the employer.
The Revenue Commissioners similarly would not have identified this error, once the redundancy calculation is agreed, they are only expecting concerns with Top Slicing Relief. So Revenue would not have seen this error either.
It was only through consultation with us that the error was spotted. James is now over €16,000 better off and wondering how best to spend the money.
Find out more about Redundancy and Tax
Find out more about Redundancy
In the next few weeks, we will be looking at some of the ways in which Tax on Redundancy can be overpaid. But if you would like a personal consultation, contact us on 05991 73300 or at 1890 733 625 or by email to refunds@redoaktaxrefunds.ie
Tags: income tax overpaid > Redundancy > redundancy payments > redundancy tax > revenue tax overpaid > tax error > tax mistakes
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