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Income Tax - Termination Benefits, Termination, Retirement

Verified 08 June 2023 - Legal and Administrative Information Directorate (Prime Minister)

Did you receive a sum at the end of an employment contract? It is subject to income tax regardless of its origin (resignation, dismissal, retirement, etc.). However, an exemption is possible in certain cases.

The following amounts collected at the end of an employment contract are always taxable:

  • Allowances of breach of employment contract (compensatory allowances for notice, paid leave, compensation for non-competition)
  • Allowances of termination of contract or assignment (termination indemnity precarious premium paid at the end of a fixed-term contract, compensation paid in the event of an early termination of a fixed-term contract at the initiative of the employer, compensation for the termination of an interim assignment, etc.)

To complete your tax return or check your pre-filled return, you can visit the explanatory note and the practical income tax brochure.

If a pre-filled amount is inaccurate, you must correct it.

Tax returns via Internet is required if your principal residence is equipped with internet access and you are able to file your return online.

For 2023, the tax return is complete.

The 2024 income tax return for 2023 will begin in April 2024.

Redundancy payments are partly exempt from income tax. In some cases, the exemption is total.

Limited exemption from severance pay

Compensation paid in the event of dismissal (excluding job protection plan) is partly exempt from income tax.

The amount corresponding to the compensation fixed by law or collective agreement is totally exempt.

If you received more, the exemption is limited to one of the following amounts:

  • 2 times the amount of gross pay you received in the year before your termination
  • Half of the severance pay you received

Tax services will choose the solution that works best for you.

Warning  

the exemption shall be limited to a maximum of €246,816 for allowances received in 2022 (€263,952 for 2023 allowances).

Example :

An employee shall receive severance pay of €120,000 of which €70,000 is the compensation provided for in the collective agreement. His gross remuneration for the calendar year preceding the dismissal is €40,000.

The severance pay shall be exempt up to the amount provided for in the collective agreement, i.e. €70,000.

This amount is greater than 50% of the compensation received (€120,000/2 = €60,000) but less than twice the annual gross remuneration, equal to €80,000 (€40,000 (x 2).

The compensation is therefore exempt up to the sum of €80,000.

The surplus of 40 000 (€120 000 - €80,000) is taxable.

The contractual termination indemnity is exempt under the same conditions, if you are not entitled to a statutory retirement pension.

Full exemption from severance pay

The severance pay is fully tax-exempt in the following cases:

  • Allowance received under a social plan (job protection plan called PES)
  • Compensation and damages awarded by the judge in case of wrongful or irregular dismissal (wrongful termination, procedure not respected)
  • Special redundancy allowance due in the event of a break-up as a result of an accident at work or an occupational disease
  • Compensation for termination of employment on discriminatory grounds
  • Compensation paid in connection with a collective breach of contract
  • Compensation paid upon termination of the contract at the end of a mobility leave

How to declare?

To complete your tax return or check your pre-filled return, you can visit the explanatory note and the practical income tax brochure

If a pre-filled amount is inaccurate, you must correct it.

For the taxable portion of severance pay, you can apply for the quotient system.

Tax returns via Internet is required if your principal residence is equipped with internet access and you are able to file your return online.

For 2023, the tax return is complete.

The 2024 income tax return for 2023 will begin in April 2024.

Your retirement or early retirement allowance is taxable. However, a total or partial exemption is possible in certain cases.

Allowance paid in the event of voluntary retirement or early retirement

The compensation paid in the event of voluntary retirement or early retirement is fully taxable.

Allowance paid in the event of retirement on the initiative of the employer

Compensation paid in the event of retirement (excluding job protection plan) is partly exempt from income tax.

The amount corresponding to the compensation fixed by law or collective agreement is totally exempt.

If you received more, the exemption is limited to one of the following amounts:

  • 2 times the amount of gross pay you received in the year before your termination
  • Half of the retirement allowance you received

Tax services will choose the solution that works best for you.

Warning  

the exemption shall be limited to a maximum of €205,680 for retirement benefits received in 2021.

Severance benefits exempted in full

Retirement and early retirement allowances shall be fully exempt in the following cases:

How to declare?

You must report the following amounts:

  • All your voluntary retirement (or early retirement) benefits
  • Taxable portion of your retirement benefits

To complete your tax return or check your pre-filled return, you can visit the explanatory note and the practical income tax brochure.

If a pre-filled amount is inaccurate, you must correct it.

For the taxable portion of retirement and early retirement allowances, you can apply for the quotient system.

Tax returns via Internet is required if your principal residence is equipped with internet access and you are able to file your return online.

For 2023, the tax return is complete.

The 2024 income tax return for 2023 will begin in April 2024.

Who can help me?

Find who can answer your questions in your region

  • For general information

    Tax Information Service

    By telephone:

    0809 401 401

    Monday to Friday from 8:30 am to 7 pm, excluding public holidays.

    Free service + call price

  • To contact the local service managing your folder

    Department in charge of taxes (treasury, tax department...)