The taxation of employer‑paid allowances following an employee’s death depends on several factors, primarily the identity of the beneficiary. Lithuanian legislation outlines clear rules on when such allowances are exempt from Personal Income Tax (PIT) and social security contributions. This article provides an overview of the applicable framework and clarifies how the tax treatment is determined in practice.
Under Article 17(1)(1) of the Lithuanian Law on Personal Income Tax (PIT), allowances paid upon the death of an employee are exempt from PIT when the payment is made to the deceased employee’s spouse, children (including adopted children), or parents (including adoptive parents). This exemption applies regardless of the amount paid.
If the allowance is paid to a person not listed in the legislation, such as a sibling, aunt, uncle, or other relatives, the PIT exemption does not apply, and the full amount is treated as taxable employment (Class A) income, with the employer responsible for withholding PIT.
A similar rule applies to social security contributions. According to Article 11(1)(2) of the Law on State Social Insurance, allowances paid to the deceased employee’s spouse, children or parents are exempt from social security contributions, regardless of the amount, except where the beneficiary is also employed by the same company. In such cases, the exemption is capped at 5 Minimum Monthly Wages (MMW) (EUR 5,765 in 2026).
Therefore, if for example, a company pays 4,500 EUR as a funeral allowance to an eligible family member, the amount may be fully tax exempt, depending on the beneficiary’s employment relationship with the company.
Eurofast’s Take
Eurofast monitors legislative changes in employment taxation and supports employers in assessing the correct tax treatment of allowances and compensation payments. Our team can assist organisations in determining eligibility for tax exemptions, preparing compliant payroll calculations, and ensuring that sensitive cases, such as payments related to an employee’s death, are handled with accuracy and legal certainty.
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