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Pension with current tax rate confused

  • 03-04-2023 12:25pm
    #1
    2Mad2BeMad
    Registered Users, Registered Users 2 Posts: 2,792 ✭✭✭


    Hi Everyone,

    I am currently paying into a PRSA pension.

    At the moment, as I understand it (I think) my tax band is 20percent as my base salary is 35k per year.

    I pay into my pension every 2 weeks, 50e net which works out at 62.5 gross due to the tax relief.

    I am expecting to hit probably 45k this year by the end of the year with Overtime and Bonuses in work.

    Obviously I wont get hit at the higher rate of tax until my wage gets there which will probably be in september/october.

    I am wondering how will that work with my pension contributions, as I understand it I should get the higher rate of tax @40percent added to my 50e forthnightly contribution shouldnt I?

    Will that 40percent be for the year and get back dated or due a refund? or only from the time my wages go into the 40percent bracket will I get the extra 20percent on top of what im getting now?


    Sounds very confusing I know, I apolgise



Comments

  • #2
    coylemj
    Registered Users, Registered Users 2 Posts: 25,620 ✭✭✭✭coylemj


    You may have initially decided to contribute 50 net to your pension and, at your current PAYE rate of 20%, that would mean that you asked your employer to deduct 62.50 from your payroll. If you do nothing when you move on to the 40% band, your employer will still deduct 62.50 p.m. but the net cost to you will fall to 37.50.

    If you want the net cost to stay at 50 then, when you move on to a PAYE rate of 40%, you should ask your employer to increase your gross monthly deduction to 83.33

    If you spent part of the year paying at 20% and then moved onto 40%, you should submit a return to the taxman in early 2024 and, depending on how much of your 2023 income was taxed at 40%, you may get 40% relief on some or all of the earliier pension contributions.



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