LETTER: Important to know tax benefits linked to severance packages

It is important for the workforce to know that the severance benefit as a tax-free benefit has been increased from R500,000 to R550,000. The severance benefit consists of lump sums from, or by arrangement with, an employer due to a dismissal for operational requirements. 

There are various other benefits for retirement funds as well. It must be remembered that this is a one-off payment and is applicable up to the maximum of R550,000 in a lifetime. There is zero tax on that amount if the individual’s tax is up to date. This taxable income then increases to 18% between R550,000 and R720,000, and increases further as it gets higher.

We are experiencing a lot of retrenchments in SA and it is incumbent upon both employers and employees to fully understand the tax benefits linked to severance packages.

Michael Bagraim
DA employment and labour spokesperson

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