Certain compensation payments made under employment law

Certain payments made to employees under employment law are exempt from Income Tax. This exemption applies to genuine compensation for breaches of employment rights. It does not apply to normal pay, or arrears of pay.

A payment can be exempt from Income Tax if it satisfies the following:

• It was made on, or after, 4 February 2004.
• It was paid to an employee, or former employee, by their employer or former employer.
• It was made under employment law following a recommendation, decision, or determination, by a relevant authority. Relevant authorities include:
  • An adjudication officer of the Workplace Relations Commission (WRC).
  • The Workplace Relations Commission (WRC).
  • The District Court.
  • The Labour Court.
  • The Circuit Court.
  • The High Court.
• The payment is mader under:
  • a mediation process provided for in employment law which is treated the same as a decision or recommendation.
  • or
  • a written settlement agreement between an employer and an employee who are not connected, where certain conditions are met. In this case, the settlement amount may not exceed the maximum award that could have been made by a relevant authority.

This exemption does not apply to any part of a payment that is pay for work, arrears of pay, or any form of renumeration (however described).

How to claim the exemption

The easiest and most secure way to claim this exemption is by submitting a request through myAccount or the Revenue Online Service (ROS) using myEnquiries.