Tax on Voluntary Severance Pay?

By Marc Sevitz · Updated 19 March 2014

How is an employer suppose to handle a voluntary severance payout? What options must be chosen on application for tax directive. Does this falls under “Gratuities paid by an employer in respect of retirement, retrenchment or death” and will I be taxed accordingly?

TaxTim Marc said:
20 March 2014 at 14:35

Voluntary severance pay will be taxed normally as it is part of your income from employment. The source code used would be 3901 and taxed as per the normal tax tables. Your employer could apply for a directive from SARS requesting a specific rate of tax to be used given that the full amount plus salary will push you up a tax bracket. However when you file your tax return you will then receive a refund of the additional amount.

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