Up until 31 December 2015, there were a number of exceptions from the tax obligation for severance pay and additional severance pay under a collective agreement, i.e. severance pay paid in accordance with a collective agreement between employer and employee confederations following involuntary redundancy. Tax exemption has also been given for severance pay not agreed in a collective agreement which was clearly similar in nature to that paid under a collective agreement, i.e. with similar requirements regarding amount, period of service and the employee's age.
The tax exemption will be abolished from 1 January 2016 for severance pay and additional severance pay paid under a collective agreement and similar severance pay not covered by a collective agreement when the employee fulfilled the conditions for receiving this severance pay only after 31 December 2015 .
This means that severance pay (a collective agreement or not a collective agreement), paid after 1 January 2016, will therefore be taxable as employment income.
If an employee fulfilled the conditions prior to 1 January 2016 for receiving a tariff-negotiated severance payment, the severance payment is not taxable, in accordance with the Tax Act Section 5 Paragraph 15 Clause 1 Sub-section a, as per the wording of the exemption provision prior to its withdrawal, regardless of whether the payment takes place after 1 January 2016. A corresponding tax exemption as per the provision's wording prior to its withdrawal applies, when an employee has an agreement with the employer pre-dating 1 January 2016 concerning the payment of tariff-negotiated supplementary severance payments, even if the payment takes place after 1 January 2016.
About the tax level
Salary income is considered to constitute ordinary income (combined income, e.g. salary, pension, interest, rental income, after the deduction of costs). The tax rate on ordinary income is 25 percent for 2016 (for 2017, the tax rate is 24 percent).
Bracket tax will be calculated on salary income with effect from the 2016 income year (The rules concerning step tax supersede the rules concerning surtax).
In the two top income bands, the respective tax rates are 10.7 and 13.7 percent. National Insurance contributions are also calculated on salary income at the rate of 8.2 percent.
The highest possible tax rate on severance pay which could be paid will be 46.9 percent for 2016.
Employers will deduct tax from severance pay in the same way as for ordinary employment income, in accordance with the employee's tax deduction card.
You will find more detailed information on severance pay/severance packages in the Tax-ABC.(in Norwegian)
Questions concerning the conditions for entitlement to unemployment benefit from the National Insurance scheme upon the termination of employment and the receipt of severance pay should be addressed to NAV.