Retirement severance pay: voluntary departure or mandatory retirement, what difference does the qualification make?

Outside of a redundancy plan, a voluntary retirement severance payment is fully subject to income tax. A severance payment made by the employer upon retirement benefits from a capped tax exemption: only the portion exceeding the exempt amount must be declared. Within the framework of a redundancy plan, severance payments are entirely tax-exempt.

The classification of the departure therefore determines the tax. The same amount may be taxed in full or only in part.

This page describes the rules applicable to a retirement severance payment made by an employer, and then the rules for the company that finances it. It does not address the specific situation of an executive based on their status.

Two departures, two regimes

The PASS is the annual social security ceiling. It is €48,060 in 2026, an increase of 2.13T.

Voluntary departure: fully taxable, excluding social plan

When an employee chooses to retire, the severance pay they receive is, according to impots.gouv.fr, fully subject to income tax unless part of a redundancy plan. According to economie.gouv.fr, it is also fully subject to social security contributions, including the CSG and CRDS taxes.

The exception is important: if the departure occurs within the framework of a redundancy plan, impots.gouv.fr indicates that severance payments are entirely tax-exempt. The rest of this page assumes a departure outside of a redundancy plan.

Employer-initiated retirement: a tax-exempt portion

When the employer retires an employee, the government provides an exemption. economie.gouv.fr specifies an age requirement for this retirement, which this page does not detail. Only the portion of the severance pay exceeding the exempt amount must be declared.

The exempt portion is the highest of three amounts:

1. the statutory or contractual retirement allowance, without a ceiling; ;
2. half of the compensation paid, up to a limit of 5 PASS; ;
3. twice the gross annual remuneration of the calendar year preceding the termination of the contract, up to a limit of 5 PASS.

The 5-PASS ceiling is listed as €235,500 for 2025 on impots.gouv.fr. The government website consulted for this article does not provide an amount for 2026; this should be verified with the tax authorities before any calculations.

For social security contributions, economie.gouv.fr cites a separate exemption limit of 2 PASS, based on the same three thresholds.

From the company's perspective: what can be deduced and what cannot be deduced

Companies that provide retirement severance packages for their employees must distinguish between three situations. These are based on tax doctrine (BOFiP, BOI-BIC-PROV-30-20-10-20).

• Provisions for retirement expenses are not tax-deductible. The BOFiP therefore "prohibits the tax deduction" of these provisions.
• The actual expenses incurred for the provision of retirement benefits are deductible from the financial year in which they are incurred.
• The premiums for an insurance policy that covers these compensations are deductible only if the company permanently loses ownership and control of the sums paid.

This policy dates from 2012 and remains in force according to the BOFiP (Official Bulletin of Public Finances). It should be reviewed as of the date of your decision.

Three books to avoid

1. To believe that all retirement severance payments are tax-exempt. Outside of a redundancy plan, only the retirement allowance paid by the employer benefits from a tax-exempt portion. The allowance for a voluntary departure is fully taxable.
2. Confusing the tax limit with the contribution limit. The tax exemption limit is 5 times the annual social security ceiling (PASS). For social security contributions, economie.gouv.fr cites an exemption limit of 2 times the annual social security ceiling (PASS).
3. Set aside funds for deduction purposes. Provisions for pension expenses are not deductible. Only the actual expenses incurred for the payment of pension benefits are deductible, in the fiscal year in which they are incurred.

Numerical example (fictitious profile)

Situation. A company is retiring an employee. It is paying him a severance package of €150,000. The statutory or contractual severance pay is €60,000. His gross annual salary for the calendar year preceding the termination of his contract was €50,000. The retirement is not part of a redundancy plan.

Issue. The employee is wondering what portion of €150,000 will be taxed. The answer depends on the employee's employment status.

Strategy. The firm reviews with the employee and the company the qualification chosen for departure and the reference amounts.

Result. For retirement, the exempt portion is the highest of three amounts:

The exempt portion is €100,000. The portion to be declared is €50,000. For a voluntary departure outside of a redundancy plan, the same severance payment would be fully taxable: €150,000. The difference in the taxable base is €100,000.

All three amounts remain below the €235,500 ceiling mentioned for 2025. This profile is fictitious. The figures illustrate the mechanism and do not predict any outcome for your specific situation.

What changes depending on your situation

• The type of departure: voluntary, retirement by the employer, or departure as part of a social plan.
• The amount of the applicable statutory or contractual compensation.
• The gross annual remuneration for the calendar year preceding the termination of the contract.
• Your status, if you are a manager.
• The financing method planned by the company.

These factors determine what applies to your situation. No results are guaranteed: the rule will be verified on your case.