How much tax do you pay on your transition payment?

In most cases, when you are fired, you are entitled to a transition payment. This is financial compensation intended to facilitate the transition to new work. However, the same question comes up for many people: how much tax do you actually pay on a transition payment?

In this article, we explain exactly what the transition payment means, why you pay tax on it, and when (or how) you can avoid the tax by spending the money smartly for your future.

What is a transition payment?

The transition payment is a gross compensation that you receive upon dismissal, unless you have resigned yourself. The amount depends on your gross monthly salary and the number of years of service. In 2025, the maximum compensation is €98,000 or one gross annual salary, whichever is higher.

The allowance is intended to make the transition to new work easier. You can use this amount to bridge the period without income or to invest in your career — for example via a outplacement process whether career coaching.

Transition payment is income

The tax authorities see the transition payment as income from previous employment.
This means that the amount is added to your salary and that you pay income tax on this.

Because the allowance is often paid out in one lump sum, this may result in your income temporarily falling into a higher tax bracket in that year. So you don't pay the same percentage of tax on the entire amount — that depends on your total annual income.

How much tax do you pay on the transition payment?

The employer withholds payroll tax via the so-called special rewards table (the “green table”).
The amount of the tax percentage in 2025 depends on your total annual income (i.e. your salary plus transition payment):

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Your employer usually does not know exactly what your total annual income is, and will therefore often use the higher percentage to prevent you from paying too little tax. When returning income tax, the tax authorities check whether too much or too little has been withheld. So you can still get money back or have to pay extra.

Gross or net transition payment

The transition payment contained in the settlement agreement is always gross.
Only after the employer has deducted payroll tax will you receive it net amount in your bank account.

For example:
suppose you receive a transition payment of €25,000.
Your employer deducts payroll tax on this, and depending on your total annual income, the net amount you receive may be between €14,000 and €16,000.

That sounds substantial, but remember that most of the tax is a withholding tax: it will later be deducted from the income tax return.

When do you not pay tax on the transition payment?

There is one important exception to tax liability.
If you have the money used for its intended purpose — to increase your employability — you need to do that part no tax to pay.

This applies when you use the allowance for:

• one outplacement process to receive guidance to new work;
• one career path or coaching focused on a new direction;
• training or retraining to other work;
• or a reintegration of the second track process if you are unable to return to your old position due to illness.

However, it is important that the amount directly by the employer the process or the trainer is paid.
If you first get the money into your account yourself, the tax authorities will see it as income and you will still have to pay tax.

Why is this fiscally regulated?

The government wants to encourage people to actively invest in their future after dismissal.
By exempting the transition payment from tax when spending on development, it becomes more attractive to opt for guidance instead of simply paying up the amount.

A well-chosen guidance program — for example via Care4Careers Outplacement — also helps you get back to work faster and more sustainably, which is ultimately also financially beneficial than paying tax on the full amount.

When does professional advice pay off?

The tax rules surrounding severance payments are complex.
Depending on your income, the time of payment and any deductions, it may be smart to seek advice from a tax advisor in advance.
Especially if you receive a high amount, this can make hundreds to thousands of euros of difference.

Employers would also do well to inform employees in good time about the tax consequences of the transition payment. This way, you prevent misunderstandings and show that you take being a good employer seriously.

Transition payment and the next step

The transition payment is intended as a stepping stone to a new future.
Many people choose to invest (part of) the amount in their personal development. This can be done through a course, but also through a career coaching program or a outplacement process where you will receive guidance in finding new work.

This is how you use the compensation for what it is intended: to create perspective, take advantage of new opportunities and get back to work with confidence.

Conclusion: how much tax do you pay on the transition payment?

• The transition payment is taxable income, and is paid out gross.
• The employer deducts payroll tax in accordance with the special remuneration table.
• The amount of tax depends on your total income.
• If you spend the amount on outplacement or training, that part is tax-free.
• Professional advice can help you get the most out of the transition payment for tax purposes.

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