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Severance pay - how do I show it on an IRP5?

Posted 25 June 2014 under Tax Q&A

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I need to pay severance pay - what IRP5 code should I use to ensure it is taxed correctly?

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TaxTim TaxTim says:
26 June 2014 at 7:38

Are you an employer? What is the nature of the severance pay, for retrenchment, resignation?

Cecile says:
26 June 2014 at 8:47

Yes and it is for a retrenchment. I made the payment as a lumpsum under code 3901, but I have established that I needed a tax directive.

If I don't apply for a tax directive now, what is the implications. The employee earn an average of R14 000 per month and has never been retrenched. My logic tells me the severence pay will probably be tax free. I loaded the leave days and pro rata bonus as usual and tax were paid on this as usual.

TaxTim TaxTim says:
28 June 2014 at 13:15

It would be better to get a tax directive as there won't be any tax on the amount as it falls into the tax free portion of the lump sum tables.

Cecile says:
30 June 2014 at 8:51

Thank you very much.

TaxTim TaxTim says:
30 June 2014 at 11:32

Only a pleasure!


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