what you must declare to the tax authorities after a victory at the industrial tribunal

Industrial tribunals resolve disputes between employees and employers. On this occasion, it may be requested that compensation be paid to the employee. But do you have to declare them to the tax authorities?

A victory in the industrial tribunal can be synonymous with a significant income for the employee. When declaring your income, you have to sort it out, determine what amounts are taxable and under what conditions. A not so simple exercise, because the sums can be paid for very diverse reasons.

Clarifications from the outset that back pay and leave are still taxable. This is ordinary income which would have been taxable if it had been paid spontaneously by the employer. You must add them to your other salaries for the year in the income tax return. Given the duration of the procedures, it is not uncommon for the employee to receive back pay relating to past years.

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Severance pay often exempt

Optionally, you can request that this deferred income be taxed under the quotient system, by indicating it in box 0XX in the supplementary income declaration 2042C (in this case, you do not mention this income in the other boxes of your declaration). The quotient system makes it possible to neutralize the effects of a change in bracket. If the premium moves you into a higher bracket of the progressive scale, it will be taxed in your usual bracket.

Then, theseverance pay. This sum is exempt, within the best of the following three limits: the applicable legal or conventional compensation, double the gross remuneration received in the year preceding the dismissal or half the compensation. The last two cases are capped six times the amount of the annual social security ceiling set at 43,992 euros in 2023. Clever calculations which, in most cases, make it possible to completely exempt the severance pay. The taxable portion can benefit from the quotient system, whatever its amount.

Non-taxable compensation

Finally, the damages and interest, which punish unfair or irregular dismissal, are not taxable on income. The same applies to compensation granted in the event of a procedural defect or dismissal recognized for discriminatory reasons.

If the dispute is resolved at the conciliation stage, that is to say without going to judgment, the employee can receive a lump sum conciliation compensation. Its amount is determined by a bar which provides up to 24 months of salary. This compensation is non-taxable.

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