According to the Labor Law, certain rights that the employee has in case of death of a close family member are prescribed. The rights that the employee’s family has in case of his death are also prescribed. This separation in the Law was made in order to calculate the tax on the figure that is paid above the non-taxable amount. In the first case, it is 10% because it is viewed as part of earnings. In the second case, it charges a rate of 20% because it is viewed as a tax on other income.
In the event of the death of an employee, the Labor Law prescribes certain obligations that the employer must fulfill.
One of the obligations is that the person who passed away must be deregistered from the records of employees or the Central Registry. The reason for unsubscribing must be stated.
According to Article 119 of the Labor Law, the right of immediate family members to reimbursement of funeral services in the event of the death of an employee has been established. This fee is non-taxable according to Article 9 of the Law on Personal Income Tax, up to the amount of 69,789.00 dinars, starting from February 1, 2020. (this non-taxable amount applies until 31.01.2021 when a new non-taxable amount will be determined).
In case of payment over the prescribed non-taxable amount in accordance with Article 85 of the Law on Personal Income Tax, paragraph 1, item 12, the amount of the difference is taxed at the rate of 20% and that income has the treatment of other income of a natural person. Tax is paid on the gross amount of the difference between the amount paid and the non-taxable amount.
Reimbursement of these costs is part of the solidarity aid, and it can be higher than the price of funeral services. In addition to close family members (spouse and children), relatives and friends who have borne the costs of the funeral may be entitled to this assistance, if the employee did not have a family. This may be prescribed by a general act and employment contract.
Regarding the documentation of costs, the Law on Personal Income Tax does not prescribe a clause that the costs of funeral services up to the non-taxable amount and others, in this case, must be documented. They are certainly recognized regardless of whether they are paid in cash or directly to the funeral home.
If the issue is a retired person, the former employer, according to the Labor Law, can, but is not obliged to cover the funeral expenses of his former employee. If he decides to provide solidarity assistance to the family, there is also a non-taxable and taxable amount. According to the Law on Pension and Disability Insurance, the Pension and Disability Insurance Fund covers the costs of funeral services of a person who received a pension, ie. gives compensation to his family in the amount of one and a half average pensions in the previous quarter. Since this represents the right that the deceased exercised on the basis of using the pension according to the Law on Pension and Disability Insurance, this does not exclude the possibility of the former employer to help the family members of the deceased.
In the event of the death of an employed or retired person, no contributions are paid for the assistance received by the family in excess of the non-taxable amount. Only tax on other income is paid.
Below you can see an example of a tax calculation in case of payment over a non-taxable amount: