Underpaid in work - tax issue

Tusky

I've just found out I was underpaid by about €5,000ish last year in work. They are going to add it to this months paycheck. My worry now is that I will be taxed to **** on it. My normal monthly is about €1,500 so I don't pay heaps of tax, but surely a bumper paycheck will change that?

Would I be better off asking for it to be paid in installments over a few months?

Thanks for your help!

Mrs OBumble

It depends on whether your work do things properly or not.

They should process it specially, and tell Revenue that it was for last year. In which case it will be taxed based on last year by them, or you can get Revenue to square you up for it quickly if work over-tax it.

But your employer may just treat it as an extra payment for this year. If they do that, overall it won't make any difference to you: you may get taxed a lot initially, but will get it (excess tax) back gradually over the following months so that the final amount you get is the same.

NB this is assuming that you don't have any un-used tax credits left over from previus months at the moment. If you're single and netting 1500 pcm, then you probably dont't. But you may if you have some - eg if you're married and getting your partner's credits, or sole-parenting, or old, or various other things. If you do have some unused tax credits from earlier months, you may not even get taxed initially.

Overall, I'd say take iin a lump, that way you will get the lump into the bank for longer.


NB this is my understanding, not professional tax advice. If you want professional tax advice, consult an accountant.

Tusky

Mrs OBumble wrote: »

It depends on whether your work do things properly or not.

They should process it specially, and tell Revenue that it was for last year. In which case it will be taxed based on last year by them, or you can get Revenue to square you up for it quickly if work over-tax it.

But your employer may just treat it as an extra payment for this year. If they do that, overall it won't make any difference to you: you may get taxed a lot initially, but will get it (excess tax) back gradually over the following months so that the final amount you get is the same.

NB this is assuming that you don't have any un-used tax credits left over from previus months at the moment. If you're single and netting 1500 pcm, then you probably dont't. But you may if you have some - eg if you're married and getting your partner's credits, or sole-parenting, or old, or various other things. If you do have some unused tax credits from earlier months, you may not even get taxed initially.

Overall, I'd say take iin a lump, that way you will get the lump into the bank for longer.


NB this is my understanding, not professional tax advice. If you want professional tax advice, consult an accountant.

But if I get it in a lump sum, I'll get roughly €6,500 next month. Will I not be taxed at a higher bracket in that case? And be charged more tax than if the money had of come to me in dribs and drabs throughout 2012? I don't see how I get that back - but then again, I'm not great with accounting! Thanks for the reply.

Jacob T

Tusky wrote: »

But if I get it in a lump sum, I'll get roughly €6,500 next month. Will I not be taxed at a higher bracket in that case? And be charged more tax than if the money had of come to be in dribs and drabs throughout 2012? I don't see how I get that back - but then again, I'm not great with accounting! Thanks for the reply.

Your tax credit is calculated annually, at the end of the 2013 tax year your take home of that lump sum will be exactly the same no matter how it's chopped up over the year.

Edit-Don't know anything about retrospectively using last years tax credits

Miss Congeniality

I find that for anything that is not straight-forward to do with tax you are better off just contacting revenue - they will be the best to advise you if you explain the situation to them.

i71jskz5xu42pb

Tusky wrote: »

But if I get it in a lump sum, I'll get roughly €6,500 next month. Will I not be taxed at a higher bracket in that case? And be charged more tax than if the money had of come to me in dribs and drabs throughout 2012?

Tax credits not withstanding dribs and drabs versus lump sums do not make a difference, your tax is calculated over the year in any case.

Just to be clear (and this may not be what you are saying) you will not be taxed at a higher bracket, only the money that goes over certain bands will be.

Personally I'd take the money now, you never know what will happen with the job, company, etc. Birds, hands, bushes and all that.

Tusky wrote: »

I'm not great with accounting!

You missed out on €5K in salary last year. It goes without saying that you're not great with accounting

phoenix999

Tusky wrote: »

But if I get it in a lump sum, I'll get roughly €6,500 next month. Will I not be taxed at a higher bracket in that case? And be charged more tax than if the money had of come to me in dribs and drabs throughout 2012? I don't see how I get that back - but then again, I'm not great with accounting! Thanks for the reply.

All you need to do is request a P21 Balancing statement at the end of this year. And you will more than likely get a nice repayment from Revenue in time for New Year sales. It's all you can do if employer insists on paying it all together. And at least half if it will be taxed at 41%. But think of it as money saved. You will be getting something back.

Miss Lockhart

I was underpaid on an hourly basis for 3 years and when it was rectified I received a lump sum of back-pay. Unfortunately for me this payment was just after new measures from an emergency budget were introduced so it was subject to new levies.

I found this very unfair as this money had been earned before these levies were introduced and this underpayment was entirely my employer's fault.

I contacted revenue to see if anything could be done but I was told that taxes and levies are calculated for when the money is paid not when the money is earned so tough luck.

That said, your PAYE should balance out eventually. I receive less money in certain months and I receive some of my tax back during those months. Other people seem to have to wait to the end of year and apply for a refund based on their balancing statement.

sixpack's little hat

As Miss Lockhart said, your PAYE will balance out over the year regardless of what months you get paid in.

However for PRSI, once you have paid it on the lump sum you wont get any of this back over the year so it would probably be better to have the money spread out over more paychecks if possible.

I'm not an accountant etc ... but I received a completion bonus in february a number of years ago which would be similar to this. I paid much more PRSI and PAYE in februray than normal. My PRSI was then the same as normal for the rest of the year but I was getting back PAYE for the rest of the year as was earning much less for the all the following months.

Tusky

Thanks for all replies. Appreciate it.