Query on why i get taxed so much on extra pay?

BrokenArrows

Ive been looking over my pay slips for the past few months and noticed something.

Ok so last month i got paid 2342.52 Gross. 192 of which is a bonus i get from time to time for meeting targets etc.
deductions: PAYE 118.61 , PRSI 160.74 , Inc. Levy 46.85

The previous month i didnt meet my bonus so it was 2150.00 Gross
Deductions: PAYE 80.11 , PRSI 60.65 , Inc Levy 43.00

Why such a big jump in PAYE and PRSI. There is almost no point in me working for my bonus.

namenotavailablE

The likely reason is that when you are paid the bonus, your monthly pay exceeds the 'annual equivalent' of €26000. You normally earn €2150 x 12 = €25800 which means that you don't pay the Health Levy- this only kicks in if you earn €26000 or more pa.
Once you earn €26000+, you have to pay the Health Levy on all of your earnings, not just the excess over €26000. It makes it very awkward to accept a payrise in these situations.

If your employer is willing to work with you on lessening this cost possible ways around it include:

• Hold off receiving the bonus until the last pay period of the year. This way you'll avoid paying the levy during the year and only pay it on the bonus payment.
• Start paying into a pension fund so that the bonus amount that brings you over €26000 is offset by the pension payment.
• Consider the taxsaver scheme or cycle to work scheme as a means of reducing your pay over €26000

You can check these possibilities out using my calculator at http://taxcalc.eu/monthlyss

BrokenArrows

namenotavailabl wrote: »

The likely reason is that when you are paid the bonus, your monthly pay exceeds the 'annual equivalent' of €26000. You normally earn €2150 x 12 = €25800 which means that you don't pay the Health Levy- this only kicks in if you earn €26000 or more pa.
Once you earn €26000+, you have to pay the Health Levy on all of your earnings, not just the excess over €26000. It makes it very awkward to accept a payrise in these situations.

If your employer is willing to work with you on lessening this cost possible ways around it include:

• Hold off receiving the bonus until the last pay period of the year. This way you'll avoid paying the levy during the year and only pay it on the bonus payment.
• Start paying into a pension fund so that the bonus amount that brings you over €26000 is offset by the pension payment.
• Consider the taxsaver scheme or cycle to work scheme as a means of reducing your pay over €26000

You can check these possibilities out using my calculator at http://taxcalc.eu/monthlyss

Ya i only get about €50 out of the bonus so im not making a loss.
So im getting taxed an extra tax because of the bonus. Does this mean that at the end of the year on average i may have paid too much tax?

namenotavailablE

Does this mean that at the end of the year on average i may have paid too much tax?

What it means is that you'll be able to save on the levy if you try to minimise the number of pay periods in which you earn over the annual equivalent of €26000.

For example, if a person earning a basic of exactly €26000 pa is due a bonus of €1000, s/he will pay a lower level of Health Levy if s/he accepts the bonus in a single payment rather than in multiple payments (eg 2 payments of €500 each). The reason is that s/he'll only pay the Health Levy once as opposed to 2 separate times- in essence, the greater the number of pay periods in whichyou earn more than €26000 gross, the greater the amount of Health Levy you end up paying. It sounds crazy and it is crazy. You can check different scenarios with the spreadsheet at http://taxcalc.eu/monthlyss

In this type of scenario, the key to it is to have a single bonus payment rather than the same amount spread out over multiple pay periods. You could propose to your employer that you get your annual bonus say at Xmas to save on the levy.

daisey87

No, you won't have paid too much tax. The increase is the health levy and also above 26,000 the PRSI rate doubles from 4% to 8% on earnings above 6,604 p.a

jockey#1

Is there not a form you can complete to get a health levy refund if your income for the year remains under €26k but in any given pay week you may have exceeded the weekly threshold?

namenotavailablE

Is there not a form you can complete to get a health levy refund if your income for the year remains under €26k but in any given pay week you may have exceeded the weekly threshold?

Yes- it's available here:

http://www.welfare.ie/EN/Publications/SW14/SW14_10/Pages/ImportantInformation.aspx