Taxes Consolidation Act 1997 section 123

Section 123 imposes a charge to income tax under Schedule E on lump-sum payments made in connection with the termination of an office or employment, where those payments are not already subject to tax under the general rules.

• The section catches ex-gratia payments, compensation for loss of office, redundancy top-ups, damages for breach of contract, and lump sums paid in commutation of pension rights — provided they are not otherwise chargeable to income tax.
• The charge extends to payments made to the employee's spouse, civil partner, relative, or dependant, and to payments made by third parties (not just the employer); non-cash benefits are taxed at their market value on the date given.
• A termination payment is treated as income received on the date of termination (or, for commutation payments, on the date the commutation is effected), and from 2018 onwards, income tax and USC are charged on the receipts basis — i.e. when the payment is actually made.
• The employer (or other payer) must report particulars of the payment in writing to the inspector within 14 days after the end of the tax year in which the payment is made; if the employee has died, the tax is assessed on and payable from the estate.