# What Is an Ex Gratia Payment? Understanding Non-Liability Funds

![Ex Gratia Payment: A payment made by an organization to an individual for damages or claims without admitting liability.](https://www.investopedia.com/thmb/SnF871XS0RkVibaSWeT35Kwu-K0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ex-gratia-payment.asp-final-281e5d6f888a4bc2a3af84110576a991.png)

*An ex gratia payment is a gesture of goodwill, made following a specific loss or damage to a property. — Investopedia / Julie Bang*

> **Definition**
>
> An ex gratia payment is a voluntary compensation made by an organization, government, or insurer to an individual for damages or claims, without requiring an admission of liability.

## What Is an Ex Gratia Payment?

An ex gratia [payment](https://www.investopedia.com/terms/p/payment.asp) compensates an individual for damages or claims without admitting liability. It is made by an organization, government, or insurer.

Ex gratia payments are [voluntary](https://www.investopedia.com/terms/h/honorarium.asp) since there’s no obligation to compensate, with "ex gratia" meaning "by favor" in Latin. They are not legally mandated, often serve as gestures of goodwill, and can be part of a strategy to maintain positive relationships with recipients or mitigate negative publicity.

Tax implications of ex gratia payments vary by country. In the United States, for example, they are subject to state and federal taxes. In the United Kingdom, ex gratia payments under £30,000 are usually tax free unless they're for work or services provided.

### Key Takeaways

*   Ex gratia payments are voluntary and do not imply any legal liability or obligation from the paying party, distinguishing them from legally mandated payments.
*   Often used as goodwill gestures, these payments can help maintain positive relationships and mitigate negative publicity for organizations, such as in cases of layoffs or service disruptions.
*   The tax implications of ex gratia payments vary between countries; in the U.S., they are typically taxable, whereas in the U.K., payments under £30,000 are generally tax free unless for work or services provided.
*   Companies may strategically use ex gratia payments to enhance their long-term relationships with customers and employees, often beyond what is legally required.
*   An ex gratia payment is not necessarily linked to admission of guilt or liability; rather, it is made to assist individuals following specific losses or inconveniences.

## How Ex Gratia Payments Differ From Standard Payments

Unlike mandated payments, ex gratia payments are voluntary. Typically, organizations, governments, and insurers compensate victims only when legally required. Because of this, ex gratia payments are not very common.

If an insurance policy [covers](https://www.investopedia.com/terms/i/insurance-coverage.asp) an injury, the insurer must pay the claim. Such payments are not voluntary; they result from legal obligations and usually admit liability.

> **Important**
>
> 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](https://www.investopedia.com/terms/g/goodwill.asp). The type of payment is made following a specific loss or damage to a property; an ex gratia payment doesn't carry with it any admission of liability. A one-time credit unrelated to a specific loss isn't an ex gratia payment. However, a credit given after a service disruption is considered an ex gratia payment.

Organizations can use ex gratia payments to maintain good relations with recipients. For example, a large retailer may offer severance pay above legal requirements after staff reductions. This goodwill gesture may help the retailer reduce negative publicity from [layoffs](https://www.investopedia.com/terms/l/layoff.asp). Similarly, British Airways often gives an ex gratia payment card to past customers who may have been inconvenienced to maintain good customer relations.

## Tax Implications of Ex Gratia Payments

In the U.S., ex gratia payments are generally subject to federal and state taxes. However, in the U.K., ex gratia payments under £30,000 aren't taxable if unrelated to work or services.

The first £30,000 of a U.K. ex gratia payment is tax free, but you must report it to Her Majesty's Revenue and Customs (HMRC) to avoid taxes.

## The Bottom Line

Ex gratia payments are voluntary payments made to an individual for damages or claims without an admission of liability. They are made by an organization, government, or insurer.

Ex gratia payments are not common and are typically used as goodwill gestures to maintain positive relationships or mitigate negative publicity. They differ from legally mandated payments in that the latter involve a legal obligation and an admission of liability.

Ex gratia payments carry different tax implications of ex gratia payments in the U.S. and the U.K. The payments are generally subject to state and federal taxes in the U.S., whereas the payments in the U.K. are generally tax free if they're under £30,000 and aren't for services or work provided, and they must be reported to Her Majesty's Revenue and Customs.

Even though ex gratia payments aren't legally required, they can have strategic importance for organizations in maintaining relationships or addressing specific losses such as layoffs.

> **Article Sources**
>
> 1.  British Airways. ”[Ex-Gratia Payment Card Dispute Form](https://www.britishairways.com/travel/webforms/public/en_gb?eId=120001&wfpId=egpc_disp_atm).”
>     
> 2.  Cavendish Employment Law. ”[Ex Gratia Payment Solicitors for Employees & Executives London](https://www.cavendishlaw.co.uk/employees/ex-gratia-payments.html).”