what is an ex gratia payment 
an ex gratia payment is made to an individual by an organization government or insurer for damages or claims but it does not require the admittance of liability by the party making the payment an ex gratia payment is considered voluntary because the party making the payment is not obligated to compensate the individual in latin ex gratia means by favor understanding ex gratia paymentsex gratia payments differ from legally mandated payments because ex gratia payments are voluntary usually organizations governments and insurers will only provide compensation to victims if they are legally required to do so because of this ex gratia payments are not very common in the case of an insurance company if a policyholder suffers an injury that is covered by the terms of their insurance policy the insurer is legally obligated to pay for the claim this type of payment is not voluntary it is the result of a legal obligation and it typically carries with it an admission of liability a company may make ex gratia payments in cases where the recipient has experienced a loss however such a transaction is not considered an admission of liability in contrast an ex gratia payment is a gesture of goodwill the type of payment is made following a specific loss or damage to a property an ex gratia payment does not carry with it any admission of liability a company providing a one time credit to its customers would not be considered to be making an ex gratia payment because the payment is not related to a specific loss however a company that provides a credit after a service disruption would be considered to be making an ex gratia payment an organization may use ex gratia payments as part of a longer term strategy to maintain good relations with the individual receiving the payment for example a large retailer that is forced to reduce staff may provide a severance payment that is larger than the legal requirement the retailer may determine that this gesture of goodwill will reduce the negative publicity generated by the layoffs similarly british airways often gives an ex gratia payment card to past customers who may have been inconvenienced to maintain good customer relations 1special considerationsex gratia payments in the u s are typically subject to federal and state income taxes however in the united kingdom ex gratia payments under 30 000 are not taxable as long as the payment is not for work undertaken or services rendered 2while the first 30 000 of an ex gratia payment made to you will be tax free taxpayers in the united kingdom must inform her majesty s revenue and customs hmrc of the payment at the end of the tax year in order to guarantee that they do not have to pay any income tax or national insurance on it 