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How the redundancy tax credit is calculated and paid

The calculation

The redundancy tax credit will be paid at a flat rate of six cents per dollar, for the first $60,000 of the redundancy payment received per redundancy. This is based on the redundancy payment before it has been taxed.

The maximum amount claimable per redundancy is $3,600.

If your redundancy payment is ... then your tax credit will be ...
less than $60,000 your redundancy payment x 0.06
$60,000 or more $60,000 x 0.06 = $3,600

Example
If your redundancy payment is ... then your tax credit is calculated as .... and will be ...
$20,000 $20,000 x 0.06 $1,200
$65,000 $60,000 x 0.06 $3,600

Example

Claire receives a payment of $78,000 when she is made redundant. This includes an amount of $7,000 for unused annual leave and $12,000 retirement leave.

$78,000 - $19,000 ($7,000 + $12,000) = $59,000.

Claire's tax credit would be calculated on the $59,000.


Redundancy payment paid in instalments

If the redundancy payment is paid in instalments, the tax credit is calculated on the total of the payments, with the same maximum amount claimable of $3,600.

Example - total redundancy payment of $100,000, paid in two instalments
Instalment Date paid Amount paid Tax credit
1 31 March 2008 $30,000 $1,800
2 30 April 2008 $70,000 $1,800
Maximum claimable $3,600

If you have been paid in instalments, you need to provide the date of the last payment on the claim form (IR524) - see below.

Claiming the redundancy tax credit

To claim the redundancy tax credit you will need to complete the Redundancy tax credit (IR524) claim form, and provide documentation that clearly shows the amount of the redundancy payment you received.

You can use the box on the IR524 to calculate your payment.

The redundancy tax credit will be paid directly into your bank account. You can fill in the details of your bank account on the form.

You must also send us some form of documentation from your employer to support the claim. It must clearly show the amount of the redundancy payment received - this could be any of the following:

  • a signed letter from your employer, showing the amount and date of the redundancy payment
  • a calculation sheet showing a breakdown of how the redundancy amount was calculated
  • payslip/s that clearly show the amount of the redundancy payment.

If you are unable to get any documentation from your employer to support your claim, please phone us on 0800 020 012.

See also

 

 


Date published: 05 Apr 2011

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