Tax on severance pay: employer or employee

In Taiwan, it is normal for the employer to pay severance pay when a lay-off situation occurs. There is a paragrah in the tax regulations on this sort of payment (severance or retirement money).

Then who pays tax on this payment, the employer or the employee ? Can employer withhold this ?

Anybody knows ?

Hey Guy like me,

It’s usual and required that the employer pays the taxes on the severance package.

[quote=“Yellow Cartman”]Hey Guy like me,

It’s usual and required that the employer pays the taxes on the severance package.[/quote]

YC, my understanding here was a little different, i thought genuine redundancy packages were tax free for both. I also thought that there was a ceiling to the tax free element as well.

Comments ?

Thanks YC and Traveller. Please see below the text that describes which part of severance pay is considered as income. Then it depends on other income or deductions how much tax iactually needs to be paid (for instance, when one stays in Taiwan less than 183 days a year, it is half the normal rate).

My issue whether the employer should be all sevarance pay to the employee, or can (or should) they withhold tax and then pay out. And if they deduct tax, how do they know if the person indeed will stay in Taiwan less or more than 183 days, in the year the severance pay is paid out ? If it is a big pile of money, better cash in and stay outside Taiwan rest of year…

Category 9:
Separation income: The retirement pay, severance pay, separation pay, resignation pay, life-time pension and the old-age pension not covered by insurance benefits received by a person, except receipt of the savings made by said person from his/her salaries every year and interest accrued thereon.

1.If received in one lump sum, the income amount is calculated as follows:

(1) If the total amount received in one lump sum is less than NT$150,000 multiplied by the number of service years at the time of separation, the income amount shall be considered zero;

(2) If the total amount received in one lump sum is more than NT$ 150,000 multiplied by the number of service years at the time of separation, half of the portion of the amount over NT$ 150,000 but less than NT$ 300,000 multiplied by the number of service years at the time of separation shall be the income amount;

(3) The portion of the amount over NT$ 300,000 multiplied by the number of service years shall totally be considered the income amount.

The last digit of the number of service years, if less than 6 months, shall be calculated as half a year and, if over 6 months, as one year.

  1. If received by installments, the income amount shall be the balance of the total amount of all installments received in one year with the deduction of NT$650,000;

  2. If portion of the separation income is received in one lump sum and portion by installments, the deductible amount mentioned in Item 2 above shall be calculated in proportion to the amounts received in one lump sum and by installments respectively.

[quote=“Guy like me”]Thanks YC and Traveller. Please see below the text that describes which part of severance pay is considered as income. Then it depends on other income or deductions how much tax iactually needs to be paid (for instance, when one stays in Taiwan less than 183 days a year, it is half the normal rate).

My issue whether the employer should be all sevarance pay to the employee, or can (or should) they withhold tax and then pay out. And if they deduct tax, how do they know if the person indeed will stay in Taiwan less or more than 183 days, in the year the severance pay is paid out ? If it is a big pile of money, better cash in and stay outside Taiwan rest of year…[/quote]

Sorry, for that level of detail, I suggest you contact Ann Hu at Universal Law CPA Group at ulc@ms13.hinet.net or 02-2381-1022 ext 11. She’s quite busy nowadays with the tax season but she’s very good and helpful.

YC, thanks. I will give her a call on Monday.

YC, thanks. I will give her a call on Monday.

Will you give her a call on Monday?

Stray Dog, I tell you twice, you still don’t know ?

Typical!

Didn’t even answer my question. :unamused:

I’m still in the dark.

Well, I did tell YC that I would call her, but you are right, I did not tell you.
Stray Dog, I am going to call her ! Maybe even twice.

[quote=“Guy like me”]Well, I did tell YC that I would call her, but you are right, I did not tell you.
Stray Dog, I am going to call her ! Maybe even twice.[/quote]
When, though? That’s the big question.

Woaaah, I believe there is a lot of concern about this call… I have good news: I called her ! It was today, and only once !!

Wll dont leave us in suspense, what was her answer. This might help someone else later in the same situation.

Wll dont leave us in suspense, what was her answer. This might help someone else later in the same situation.[/quote]

The short answer is that yes, the employer is responsible for the tax, not the employee. I’ll let Guy follow up with additional details if any.

Indeed the employer needs to withhold tax on severance pay. Severance payment is considered as income (see my post earlier for how much can be deducted - the amounts are a bit higher now) and therefore tax needs to be paid. For example, if your salary is 150 kNT/month, and you worked 10 years, sevarance pay will be 1.5 million NT, all of which is NOT considered income. If your salary is higher, you do have to pay tax (but first 1.5 million is almost “tax free” - and only 50% of the balance is considered as income) and the employer will withhold this. Depending on how many days you would stay in Taiwan in the calendar year the sevarance pay is handed out, you can reduce this tax by half (if you stay in Taiwan less than 183 days) by informing your employer you will leave Taiwan. All of this is only relevant if you lose your high income job in the beginning of the year.

What if I earn twelvety billion a month? I think you should call Ann again.

Again.

Again ?