Retrenchment benefits are payments made to employees when their employment is terminated prematurely by employers.
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Taxability of retrenchment benefits

S/NTypes of retrenchment benefits Is it taxable?
1

Compensation for loss of office

(e.g. due to company downsizing or restructuring)

Not taxable
 
It is capital in nature.
2
·     Payment in lieu of notice
·     Ex-gratia
·     Gratuity

Taxable
 
These payments are made to recognise the past services provided, not payments for loss of employment.
3

Payment for restrictive covenants

(Agreement restricting employee actions, e.g., non-compete clauses)

Not taxable
 
It is capital in nature.
4

Outplacement support 

(e.g. counselling, job search assistance)

Not taxable when the following conditions are met:

  1. The outplacement support is provided to compensate for loss of office and is only available to retrenched employees;
  2. The only expense incurred by the employer to provide the outplacement support is the fees paid to the outplacement agents or cost incurred to provide other forms of outplacement support, whichever the case may be; and
  3. Any employee who is eligible for outplacement support but chooses not to accept it is not entitled to any other compensation in lieu, whether in cash or otherwise.
The nature of each payment should be determined based on specific facts and circumstances giving rise to the payment and does not depend solely on the description ascribed to the payment by employers. 
The taxable retrenchment benefits are taxed in the year that you are legally entitled to the benefits and not based on the date of payment. It is usually taxed in the year that you are retrenched.

Example 1: Tax treatment of retrenchment benefits given to an employee

Mr Tan was retrenched by ABC Pte Ltd. He was given a retrenchment package which was paid to him the following year. The retrenchment package consists of the following components:

  • Payment in lieu of notice
  • Gratuity
  • Compensation for loss of office

 

a. How will Mr Tan be taxed on his retrenchment package?

·       Payment in lieu of notice
·       Gratuity 		Taxable
These payments are for past services, not payments for loss of office.
·       Compensation for loss of officeNot taxable
It is a payment to compensate Mr Tan for the loss of office and hence capital in nature.

b. When will Mr Tan be taxed on his retrenchment package?

The taxable components (i.e. payment in lieu of notice and gratuity) will be taxed in the Year of Assessment Mr Tan was retrenched and not when he was given the package (i.e. not taxed in the following year).

Reporting retrenchment benefits

If your employer is not participating in the Auto-Inclusion Scheme (AIS) for Employment Income If your employer is participating in the AIS
You must declare the taxable retrenchment benefits under 'Employment - Others' in your Income Tax Return. You do not need to report the retrenchment benefits in your Income Tax Return as your employer will submit the information to IRAS electronically.

FAQs

I have been retrenched and received retrenchment benefits from my employer. How do I know the breakdown of the retrenchment package and how the payout amount is derived?

Generally, employers compute retrenchment payment based on an employee’s length of service. You may approach your employer for the breakdown of the retrenchment package and computation of each payment component.

I have been retrenched and received retrenchment benefits from my employer. When will I be taxed on these benefits?

Retrenchment benefits are taxed in the year that the employee is legally entitled to them and not based on the date of payment. It is usually taxed in the year the employee is retrenched.

For example, you were retrenched in 2024 but only received the retrenchment benefits in 2025. The retrenchment benefits received in 2025 will be taxed in the Year of Assessment 2025 (i.e. income for 2024).

Help and support

Help & support available

For financial assistance

If you are experiencing difficulties in paying your tax, you may:

 

For other assistance

If you require other forms of assistance specific to your circumstances, you may wish to approach the following agencies:

For employment assistance

For social assistance

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