Yes as soon as I posted I had second thoughts. The IRS classifies severance pay as earned income...........so does statutory UK redundancy qualify too?
In my experience, yes.
I utilised a voluntary redundancy programme to facilitate early retirement. Payments included a redundancy payment, a loss of office payment, and an
ex gratia payment. Of course, the term "redundancy" doesn't exist in the US.
Originally, the IRS argued the redundancy payment was a "golden parachute". The successful counter-arguments centred around severance programmes in the US at the time involving GM attempts to spin off Delco, and other auto company actions at the time. Delco claimed it would not survive unless older, union employees were let go and replaced with workers paid 1/2 the wages and fewer benefits.
(If I remember correctly.) The workers who
volunteered to leave were given severance packages based on the number of years of prior employment.
The IRS deemed the US severance packages as "earned income", taxable in full during the year the payment was made with no regard to the years of prior employment used to calculate the payment. Logical, since it would obviously stand a chance of bumping the taxpayers income up several tax brackets.
The successful argument was "redundancy" resulted in a "same" package. It was a rather complicated return. It's been almost 10 years ago, and I never heard another word.
I assume the tax experts would find a more substantial argument utilising sections of Title 26.
Obviously - YMMV.
