Tax on a severance benefit using the lump-sum table, first R550,000 free.
Net severance
—
Tax on severance
—
Effective rate
—
Losing your job, and the one tax break that softens it
Being retrenched is hard enough without a heavy tax bill on the payout. The good news is that South African law treats a genuine retrenchment severance benefit generously. Instead of taxing it as ordinary income, SARS runs it through the retirement lump-sum table, the same favourable scale used at retirement, which means a large chunk arrives tax-free. This calculator works out the tax on your severance, nets it off, and shows the effective rate, so you know what actually lands in your account.
What counts as a severance benefit, and what does not
This matters because the favourable table only applies to the right kind of payment. A severance benefit qualifies when your job is genuinely made redundant, usually after age 55, on ill health, or because the employer ceased or reduced operations, and you were not a major shareholder directing your own retrenchment. What does not qualify, and is taxed as normal income on the salary scale instead, includes your notice pay, accrued leave paid out, a pro-rata bonus, and any commission owing. So a retrenchment cheque is often two payments stitched together: the severance portion on the kind table, and the rest on the ordinary one. This tool covers the severance portion.
The lifetime pool you share with retirement
The figure this calculator applies, in line with SARS practice, makes the first R550,000 of severance tax-free. But that R550,000 is not exclusive to retrenchment. It is one shared lifetime amount across all your severance and retirement lump sums. If you already drew a retirement lump sum, or were retrenched before, that earlier payout has eaten into the R550,000, and your severance is taxed from a higher point on the scale. The prior lump sums field is where you capture that. Confirm the R550,000 and the band rates with SARS, since the table is set in legislation.
A R700,000 retrenchment payout
Imagine a R700,000 severance benefit with no prior lump sums. Using the rates this calculator applies, the first R550,000 is free and only the R150,000 above it is taxed, all within the 18 percent band. That comes to R27,000 of tax, leaving R673,000 net. Across the full R700,000 that is an effective rate of just 3.86 percent.
| Portion | Rate | Tax |
|---|
The split below shows how little of a R700,000 payout actually goes to tax once the R550,000 tax-free amount is applied.
A practical step many people miss
Before your fund or employer pays out, they apply to SARS for a tax directive, which fixes the exact tax to withhold. If you have a recent retirement annuity contribution that was never deducted, or you are unsure how prior lump sums were recorded, raise it with the payroll team before the directive is requested. Errors at that stage are awkward to unwind. It is also worth knowing that you can elect to transfer a severance benefit into a retirement fund instead of taking cash, deferring the tax entirely, which suits someone who does not need all the money immediately.
Is the tax on retrenchment pay deducted before I receive it?
Yes. The fund or employer obtains a SARS tax directive and withholds the tax shown on it, so the amount that reaches your bank account is already net. You do not get the gross and pay later. If your circumstances mean too much was withheld, for example because a prior lump sum was double-counted, it is corrected on your annual assessment.
Does my notice and leave pay also get the R550,000 break?
No. Only the severance benefit itself uses the retirement lump-sum table and the tax-free amount. Notice pay, accrued leave, and any pro-rata bonus are added to your ordinary income for the period and taxed on the normal PAYE scale at your marginal rate. That is why a retrenchment package can show two very different effective tax rates on its components.