I was laid off but received severance pay. Is this considered income? How do I pay taxes? Or can I avoid paying? It’s very difficult to find a job right now. I’ve been unemployed for several months.
The issue of being laid off is increasing day by day. Part of the reason is due to the problems of entrepreneurs who have been affected by COVID and the economic crisis that shows no signs of improving. We can see this from many businesses that have been closing down.
This time, Covid has hit both employers and employees hard. Who will survive depends on the ability to solve immediate problems and the company’s financial liquidity. If any organization or company still has a lot of capital, it may be possible to move forward. But if we are employees working in these companies, don’t be careless. Because at this time, no one can answer when Covid will end or how. Let’s just say that saving cash, spending carefully, and looking for extra work should be the most important thing to do during this time.
But there are many of our friends who are unlucky. Their companies have to face a crisis, have to close down or have to downsize. The result is that they are laid off.
Last year, in October, a group of about 15 people were laid off by a large public company. They received more compensation than the law stipulates (in this case, the company did the right thing and it was a fair dismissal).
But after being laid off, problems followed because this group of young people encountered tax problems. There were 2 cases of young people in this group:
“Misunderstandings lead to paying more taxes than they should.”
First case
Some of them, after receiving the compensation, filed their personal income tax as usual. Of course, their income in the 2019 tax year must have been much higher than the previous year, whether it was their regular salary from January to September 2019, severance pay from termination of employment, and the last part was the money from the provident fund. As a result, they found that they had to pay a lot more tax than before. They did not know that if they were laid off, the Revenue Department had a helper that we could use to reduce the tax. And if we move the provident fund to a new workplace or move it to a retirement mutual fund (RMF), this money is not subject to tax.
“I was fired and now I have to deal with a tax case.”
Second case
More serious than the first case, many students, after receiving severance pay, believed that if they were laid off, they did not need to file taxes, including their salary, severance pay, and provident fund income. The result was that they did not file taxes, which made them guilty, and had to face fines and pay additional taxes because they had to pay interest and fines of 1.5% per month starting from September 1, 2020. And this matter may not end here because if there is evidence that the students intentionally neglected to file the form to avoid paying taxes, they may be fined up to 200,000 baht or imprisoned for up to 1 year, or both. If it is the latter, it is easy to say that their future is ruined because of their ignorance.
In conclusion, is being laid off but receiving severance pay considered income?
Severance pay is considered income, which of course will have tax burdens that we have to take care of and manage. However, when it comes to being laid off, it is not just severance pay that affects taxes. There are also many other types of income involved, as follows:
Regarding compensation money
In this case, it is considered a fair dismissal, which is the money that will be received when leaving the job according to the labor law due to being laid off, fired, expiration of the employment contract, and retirement without the employee being at fault.
According to the Labor Law, Section 118, employers are required to pay compensation to employees who are terminated as follows:
- Employees who have worked for 120 days but less than 1 year are paid no less than 30 days’ wages.
- Employees who have worked for at least 1 year but less than 3 years are paid no less than 90 days’ wages.
- Employees who have worked for at least 3 years but less than 6 years are paid no less than 180 days’ wages.
- Employees who have worked for at least 6 years but less than 10 years are paid no less than 240 days’ wages.
- Employees who have worked for 10 years or more but less than 20 years are paid no less than 300 days’ wages.
- Employees who have worked for 20 years or more are paid no less than 400 days’ wages.
In the event that we are laid off or fired and receive compensation: The first 300,000 baht of compensation that we receive will be exempt from tax.
For example, if you receive 500,000 baht in severance pay, the first 300,000 baht of compensation will be exempt from tax. The remaining 200,000 baht will have to be calculated for personal income tax.
If you are laid off during the tax year, your salary is subject to personal income tax as usual. Only the first 300,000 baht of severance pay is exempt from tax.
In the case that we retire or the employment contract ends and receive compensation: All of the compensation must be calculated for tax purposes as a lump sum and the first 300,000 baht is not exempted as in the case of being laid off or fired.
For example, if you work until retirement at age 60 and receive 1,500,000 baht in compensation, you must also include this money in the calculation to pay personal income tax.
In the case that we resign voluntarily or are fired due to serious misconduct: In this case, we do not receive compensation and are not entitled to tax deductions.
About Provident Funds
Which will consist of 4 parts of money: the first part is savings (employees pay into the fund), the second part is matching funds (employers pay into the fund), the third part is savings benefits, and the fourth part is matching benefits. If we are laid off, we have the following options:
Request to keep the money in the provident fund . We can choose to keep all the money in the provident fund and continue to be a member of the provident fund without having to make any further contributions and the original employer no longer has to make any further contributions. The period for which we can keep the money in the provident fund is according to the fund regulations, but not less than 90 days from the date of leaving the job. As long as we have not withdrawn the money, we do not have to pay taxes. After that, if we find a new job and the new place has a provident fund, we can transfer money from the provident fund of the original company to the provident fund of the new company as well.
Transfer Provident Fund to Retirement Mutual Fund (RMF) We can choose to transfer Provident Fund to Retirement Mutual Fund. If we choose this method, it means that there is no cash withdrawal yet, so we do not have to pay tax.
If we need to use the money by resigning from the fund and withdrawing it in cash, legally if we have been a member of the provident fund for less than 5 years and are not yet 55 years old, we must pay taxes on the money in the benefit portion of the savings, the employer’s contributions, and the benefits of the contributions. As for the savings that belong to us that we receive back, we do not have to pay taxes.
Regarding other lump sum payments (in addition to compensation and provident funds)
For example, money or compensation in lieu of notice, unused annual leave pay, outstanding salary, damages claimed for termination, etc., this money we receive will be considered our income and we must file our normal personal income tax return.
How to pay taxes if you are laid off
In the first case, our employment period is more than 5 years (counting from the first day we started working until the last day we were fired from work).
We have the right to choose to include this lump sum or not with other income to pay personal income tax. If we choose to file separately, we must file using the attachment, Por.Ngor.Dor. 90, 91, in the case of calculating income that the employer pays only once because of leaving the job, only for those who choose to pay taxes without including it in the calculation of taxes with other income. In general, if we can file taxes separately without having to include it with other income, it will help reduce our tax burden. Therefore, we should choose to use the right to file separately with the attachment, which is better.
In the second case, our employment period is less than 5 years (counting from the first day we started working until the last day we were fired from work).
If we work with this employer for less than 5 years and have been a member of the provident fund for less than 5 years, we will not be entitled to file a tax return for this lump sum with an attached form. Instead, we must add the total amount received to our other income to pay personal income tax, causing us to pay taxes at a higher tax base.
By now you should know that if you or your friends are laid off, you need to plan your taxes and how to pay taxes correctly and not pay too much.
Conclusion
By now you should know that if you or your friends are laid off, you need to plan your taxes and how to pay taxes correctly and not pay too much.
Because labor law is related to tax, we must study the terms and conditions carefully. Otherwise, we may become the losers and may break the law.
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