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Taxing redundancy and retiring payments

Retiring allowances

A retiring allowance is a payment made to an employee when they have finished employment completely because of:

  • the employee's decision
  • the terms of any union contract
  • the length of service of the employee, or
  • the employer's policy.

It is not based on the age of the employee.

Redundancy payments

A redundancy payment is different from a retiring allowance. Redundancy is when a termination of employment is the employer's decision.

Redundancy payments may be made to:

  • an employee whose position is no longer needed, or
  • a seasonal worker whose usual seasonal position is no longer needed (the employee works for you each year for a continuous period of less than 12 months at a regular time each year).

How to tax

Both types of payment are taxed at the lump sum rates, but are not liable for ACC earners' levy.

See Lump sum payments for more information .

To treat a payment as a retiring allowance or redundancy payment, the person's employment must have been terminated.  If employment is not terminated, the payment is liable for earners' levy.