Some compensation related to termination of employment paid in the scope of mutual termination agreement, work loses compensation, job security compensation, and end of work compensation will be considered as wage. However, part of these total payments not exceeding the amount of severance pays will be exempt from income tax.
When an employment contract is ended, various compensations are paid to entitled employees. In practice, treatment of these termination payments from the point of income tax and SSI premiums always causes confusion.
Now with the Omniums Bill (colloquially known as bag law) No. 7103, which is issued in Official Gazette No. 30373, dated 27th March 2018, description of wage in Income Tax 193 is amended by an additional clause as regard to mutual termination payments.
As per article 61 of Income Tax Law No. 193; “Wage is a benefit provided by cash in kind and cash, represented by cash, in return of services performed by employees registered and subject to an employer.
It does not change the true nature of wage by paying it under the names of indemnity, allowance, cash compensation (Financial Liability Indemnity), allocation, increment, advance, remuneration, attendance fee, premium, bonus, in return of an expense or determined by a particular percent of revenue provided not to have the attribute of a partnership.
The payments that are made after the termination of employment contract under various names such as, compensation paid in the scope of mutual termination agreement; work loss compensations, job security and end of work compensation will be considered as wage.”
SEVERANCE PAY IN REGULATION
Entitlement to Severance pay in general is arranged in Labor Laws; however employee and employer can make special arrangements regarding termination of employment.
As per article 25 of Income Tax Law No. 193; total amount of severance payment entitled in line with Labor Law No. 1475, and the amount not exceeding 24 months’ salary of press members (in the scope of Law No. 5953) are exempt from income tax. Only stamp tax (0,00759) is applicable for both employees.
Also, severance pay is exempt from SSI premiums.
For detailed information for severance pay please visit our website;
Briefly we may say that there are different types of termination payments, and their tax treatments are also different:
- Classic severance pay (arranged in Labor Laws) are exempt from income tax and SSI premiums,
- Payments due to mutual termination agreements are considered as wage, but part of these total payments not exceeding the amount of (classic) severance pay are exempt from income tax and SSI premiums. Such payments above severance pay will be subject to both income tax and SSI premiums.