Bike to work scheme - public sector query

SteadyEddie

Hi all,

I have a query about the bike to work scheme. Based on the Bike to work website , am I right in assuming that Public sector employees on the top tax bracket can save (41% tax + 6% PRSI + 4% Levies + Pension Levy - anything from 5-9.6%??).

So someone on say 45k, saves 41% + 6% + 4% + 7.2% = 58.2%?

Quite a saving...

tunney

SteadyEddie wrote: »

Hi all,

I have a query about the bike to work scheme. Based on the Bike to work website , am I right in assuming that Public sector employees on the top tax bracket can save (41% tax + 6% PRSI + 4% Levies + Pension Levy - anything from 5-9.6%??).

So someone on say 45k, saves 41% + 6% + 4% + 7.2% = 58.2%?

Quite a saving...

Its before tax but after levies. Certainly the income levies anyways, would assume the pension levy too.

manwithaplan

I looked at my reduction in my net pay and I thought I had saved something approaching 60%. I will have a another look on Monday.

Beasty

You should save both pension and income levies under the scheme

happygoose

The saving isn't quite so much, I'm in the public service and familiar with the application of the scheme.

€1000 on the ctws for a public sector employee paying tax at the top rate equates to a reduction in net pay of €24.16 per fortnight for 26 fortnights.

€24.16 x 26 = €679.64.

manwithaplan

Don't think that's right. I just checked my bank statements. The net pay reduction is €18.52 per fortnight and I spent the full €1,000. The gross pay reduction (the salary sacrifice - €1000/26) is €38.46. That works out at a benefit to me of 52%.

I pay tax at the top rate and pay towards the upper end of the pension levy. However, as I joined the public service prior to 1995, I pay a class B PRSI (2% IIRC)*. An post-1995 entrant paying class A PRSI would get a greater benefit.

In short - public servants get a better return for the ctw scheme because they save the pension levy also, but this balances out somewhat for pre-1995 public servants because of the effect of class B PRSI.

happygoose

manwithaplan wrote: »

Don't think that's right. I just checked my bank statements. The net pay reduction is €18.52 per fortnight and I spent the full €1,000. The gross pay reduction (the salary sacrifice - €1000/26) is €38.46. That works out at a benefit to me of 52%.

I pay tax at the top rate and pay towards the upper end of the pension levy. However, as I joined the public service prior to 1995, I pay a class B PRSI (2% IIRC)*. An post-1995 entrant paying class A PRSI would get a greater benefit.

In short - public servants get a better return for the ctw scheme because they save the pension levy also, but this balances out somewhat for pre-1995 public servants because of the effect of class B PRSI.

I certainly hope you're right MWAP as I'm about to put mine through, but I'm 100% that the place I work in processes it like that at the moment (whether it's right or not I will look into on Monday). I will look at how we're processing it and then repost on this thread on Monday.

Beasty

There are 2 aspects of the pension levy to consider:

1. Because it reduces taxable pay, tax/PRSI relief is given on the pension levy itself. Hence for a higher rate taxpayer, the tax relief reduces the net impact of the pension levy by approximately 50%
2. The salary sacrifice reduces gross pay for the purpose of calculating the pension levy

Assuming a €1,000 bike purchase, a marginal tax/PRSI/income levy rate of, say, 50%, and a pension levy of 6% the impact on net pay is calculated as follows:

1. Reduction of gross pay under salary sacrifice - €1,000
2. Reduction of pension levy payable 6% x €1,000 - €60
3. Reduction of taxable pay = €1,000-€60 = €940
4. Reduction of tax/PRSI = 50% x €940 = €470

Overall saving = reduction of pension levy (€60) + reduction of tax/PRSI (€470) = €530 (53%) (ie the marginal tax rate plus the after tax pension levy)

Of course, the figures would be different for people on different tax/PRSI and pension levy rates

Lumen

manwithaplan wrote: »

I pay tax at the top rate and pay towards the upper end of the pension levy.

Brian, is that you? I'm not sure your plan is going so well.

BeepBeep67

happygoose wrote: »

The saving isn't quite so much, I'm in the public service and familiar with the application of the scheme.

€1000 on the ctws for a public sector employee paying tax at the top rate equates to a reduction in net pay of €24.16 per fortnight for 26 fortnights.

€24.16 x 26 = €679.64.

Hey happy, I hope you're not in the finance dept - €24.16 x 26 = €628.16 - we're doomed

manwithaplan

Lumen wrote: »

Brian, is that you? I'm not sure your plan is going so well.

There's a plan?

happygoose

BeepBeep67 wrote: »

Hey happy, I hope you're not in the finance dept - €24.16 x 26 = €628.16 - we're doomed

Oh dear!!:o

Is it implemented in the same way as the taxsaver bus ticket?

namenotavailablE

Is it implemented in the same way as the taxsaver bus ticket?

Yes- it's the same 'salary sacrifice' idea.

You can download my net income spreadsheet at http://taxcalc.eu/monthlyss to check out the cost of these tax schemes.

marley1

Hi Just wondering if anyone can tell me what the savings are for a public sector worker who is on the lower tax band in the public sector
I'm on 41k but I have some of my wifes tax credits meaning I pay all of my tax on the lower tax scale.
tax - 20%, prsi - 4%, universal social charge 6%, pension levy 7%, pension + w/o contribution -6.5%

Thanks in advance

Idleater

You pay tax on Gross salary - usc - levy - cumulative tax credits - pension - bike. If that puts you in the lower tax bracket then that's your % saving.
Of course you could reduce pension contributions or your wife's credits to remain exactly at the standard rate cut off point in order to maximise your savings at the higher tax rate.

manwithaplan

Just for the complete nerds among us, there was a change to the treatment of the public sector pension related deduction (PRD) in Budget 2011. The income levies and PRSI previously were calculated on your gross salary less the PRD but now the universal social charge and PRSI are based on your salary before the PRD is deducted.

Don't think that matters for the CTW scheme though because the salary sacrifice comes off before any deductions are made

@marley1, as far as I know, you will avoid all deductions on the amount you spend under the ctw scheme, not just the tax.

pb2

Hi, I'm in the public sector working as an SNA. I'm also a bus escort. This is paid by cheque from the school and I pay tax on this wage too. All of my tax credits are on my SNA wage. The bus escort wage pushes me I to the higher tax bracket. I'm just wondering does anyone know if this will mean ill save the maximum amount, if both wages are taken into account? Thanks