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Awkward pension question

2Mad2BeMad

Hi everyone,

I currently contribute into a pension 135e monthly.

My gross income annually is 34k.

So the saved tax us 20 percent.

This year my gross income reached slightly over 40k but because of my contributions only 39.2k was my final gross salary.

I was taxed for the full 40k on usc.

Basically my question is because I earned 40k should I receive either a refund for the year the difference between 20 and 40percent tax on my contributions? Seen as how I reached the 40percent bracket even though my contributions made me go just under it and I hvnt actually paid 40 percent on any of my salary.

I've probably worded this very badly 😅

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cpb

With regards to a company direct payment to an employees PRSA,

Does it need to go through the paye system or is it employers contribution that qualifies to be tax free

for both company and employee, as per revenue https://www.revenue.ie/en/employing-people/benefit-in-kind-for-employers/other-benefits/pension-contributions.aspx

FlipFlopAgain

Read the last sentence from the link. It says:

Employer contributions to an employee's scheme are not taken into consideration when calculating the employee's earnings threshold.

Typical company pension might be 5% employee contribution taken directly from payroll with tax relief applied at source and 5% matching employer contribution.

So, if you're between 30 and 39, you can contribute an additional 15% of your income to your pension (so long as your total income is under the ceiling of €115,000). I.e. the employer contribution is not counted when working out your maximum contribution that gets tax relief.

You can either ask your company HR/payroll to make the additional contribution out of monthly pay and get tax relief at source. Or you can make a direct contribution to your pension scheme out of your after-tax income and claim the tax back from Revenue. You will need to check with your pension scheme about making direct contributions. Most allow it (but some might not).

slystallone

https://www.boards.ie/discussion/comment/122394603#Comment_122394603

Have a look at my question above and let me know the answer.

JVince

https://www.boards.ie/discussion/comment/122386765#Comment_122386765

In a way it is as revenue don't look at who is giving what into the fund.

But they don't allow you add the company contribution into your salary threshold. EG If you earn €80k and the company pays 8k contribution, it is the 80k figure the 25% is worked from and not 88k.

slystallone

It is not very clear from that link.

Geuze

https://www.revenue.ie/en/jobs-and-pensions/pension/relief/tax-relief-limits.aspx

Please read this.

slystallone

For tax relief on contributions, does the employer contribution get chucked into that percentage, for example the 30-39 bracket if an employer pays a 5% contribution, do I pay 15% to bring me up to the maximum relief mark of 20%? or is it just my own contributions are counted so I should put in 20% myself, if I want to max out on the relief.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121588111#Comment_121588111

The tax benefit is applied by not including your pension contributions in the calculation of income tax.

lawred2

https://www.boards.ie/discussion/comment/121575914#Comment_121575914

You get 40% relief on the portion paid at the highest rate. Not your entire salary.

RobbieV

https://www.boards.ie/discussion/comment/121588465#Comment_121588465

Makes sense. Thanks for that. Much appreciated.

coylemj

https://www.boards.ie/discussion/comment/121588111#Comment_121588111

If you're claiming after the event i.e. submitting a return in the new year, the tax benefit is applied indirectly. The folk in Revenue will take your gross income, deduct the pension contributions and they will then calculate how much PAYE is due on that (net) number. The number they arrive at (PAYE due) will be less than what your employer deducted and you will be entitled to a refund of the difference.

RobbieV

https://www.boards.ie/discussion/comment/121586251#Comment_121586251

Thank you for your reply with the information.

I'm still unsure as to how the tac benefit is applied.

dxhound2005

The OP has had annual gross pay of €34K up until 2023. In 2023 their gross was just over €40K. That overtime or whatever caused it could have been earned in March or July or any other month/s? That seems to be catered for by the way income tax is calculated for each pay period.

But their original question included this: "I was taxed for the full 40k on usc." I was only trying to make clear that USC (and PRSI) have nothing to do with income tax. And both are charged on all gross pay. If someone asks their employer to takes some gross pay into a pension scheme, that does not reduce their USC and PRSI liability.

How your Income Tax is calculated

If you are paid weekly, your Income Tax is calculated by:

applying the standard rate of 20% to the income in your weekly rate band
applying the higher rate of 40% to any income above your weekly rate band
adding the two amounts above together
deducting the amount of your weekly tax credits from this total.

If you are paid fortnightly or monthly, the same principles apply.

coylemj

https://www.boards.ie/discussion/comment/121586471#Comment_121586471

You tell your employer how much (gross) contribution you want to make. That number is deducted before PAYE is calculated so for most of the year, you are saving the 20% tax that you would have paid on that income. Looking at your numbers, at the end of 2023 you would have dipped into the 40% band if you were not paying any pension contributions and you would have paid more more tax in December compared to November but you didn't. Because your pension contributions were deducted from your gross income before PAYE was calculated and this kept you in the 20% band.

But say you did go well into the 40% band, for the November and December payrolls. What you seem to think is that you would then get more net pay because the amount of tax you saved on the pension contributions would go from 20% to 40%. It would, but you would now be paying 40% on all of your net salary so your net (take-home) pay would reduce, not increase.

The extra tax relief on the pension contributions would be swallowed up by the increase in PAYE from 20% to 40% on the rest of your income.

Geuze

Why don't you settle this question by using the figures from your final 2023 payslip, and calculating whether the income tax is correct?

Get a pen and paper, and calculator, and do the sums yourself.

Geuze

You seem to be implying that at the stage during the year when an employee reaches 40,000, their net pay should rise, as they start getting more tax relief on their pension contribtions?

It doesn't work like that.

2Mad2BeMad

https://www.boards.ie/discussion/comment/121586264#Comment_121586264

According to my payslip 62.25e gross is taken (50e plus 20percent) and added to my pension every fortnight, this number has not changed nor has my net income for them 2 weeks over the last year, so I could not have got 40percent on the final 800e as nothing has changed. My final payslip is the exact same as the previous ones for the year.

thomasm

Good discussion here on whether those only paying tax at 20% should make a pension contribution

https://www.askaboutmoney.com/threads/should-someone-paying-tax-at-20-contribute-to-a-pension.232596/

Geuze

https://www.boards.ie/discussion/comment/121585923#Comment_121585923

How do you know this for sure?

If the difference beween your gross and taxable pay is the pension deductions, then that is correct.

Where would you expect to see the tax relief reported?

I make monthly pension contributions to my work pension, but the tax relief is not listed on my Tax Creedit Cert, or on my payslip.

The tax relief is the drop in the taxable pay.

Geuze

https://www.boards.ie/discussion/comment/121585830#Comment_121585830

The employee submits documents that are supplied by PRSA company, when the employee is doing their normal, regular Form 12 tax return.

BhoyRayzor

Through MyAccount, either the year after through the Form 12 or current year and TCC should update

https://www.revenue.ie/en/jobs-and-pensions/pension/relief/how-to-claim.aspx

2Mad2BeMad

My contributions are taken at source, but I was definitely not given 40percent of the 800e over 40k.

Was only given 20percent.

I've submitted my statement of liability over the weekend so il wait and see what that says. But I checked my payslips and my final payslip for the year would of brought me over the 40k so it's probably why I would not of been given the 40percent off of 800e as it didn't reach it until the last pay.

So I might have to go chasing for it or maybe it'll come up as a refund on my statement of liability

RobbieV

https://www.boards.ie/discussion/comment/121585729#Comment_121585729

If the employee is not paying into a pension through employer payroll but is paying into their own prsa in one lump sum payment each year. How is this tax relief claimed or applied ?

Geuze

https://www.boards.ie/discussion/comment/121585069#Comment_121585069

If pension deductions are made through payroll, then tax relief is applied at source.

By that I mean, in the same pay run.

Employee pays contribution in August, tax bill falls in August.

The relief comes in the form of taxable pay falling below gross pay.

Geuze

https://www.boards.ie/discussion/comment/121584992#Comment_121584992

Yes, correct.

Geuze

Gross pay 2023 = 40,800

Pension conts 2023 = 1,600

Taxable pay = 39,200

Tax relief as follows:

800 @ 40% = 320

800 @ 20% = 160

If the pension was deducted at source through payroll, then tax relief is automatically applied. No need for employee to do anything.

2Mad2BeMad

No my querie was do I get a refund or tax relief of 40 percent from all my contributions for 2023. Seen as how my gross pay for 2023 was 40.8k, but with my contributions taken out my final gross pay was 39.2k

So even though I did hit the 40percent bracket my contributions made me go under, so do I receive nothing or a refund in the difference through out the year, or do I receive a refund of 20percent off 800e seen as how my gross was 800e into the higher tax bracket

dxhound2005

https://www.boards.ie/discussion/comment/121578497#Comment_121578497

I don't understand this. And all the websites such as Revenue that I look at, seem to contradict what you are saying.

"The rate of tax relief on your pension contributions is at the highest rate of income tax you pay, known as the marginal rate." (From the Revenue site).

Anyway the query was about USC being applied to all gross pay, where the OP thought that it should be gross pay less pension contributions. Which is incorrect, they mixed up Income Tax where there was a change to the rate at €40,000 (in 2023) with USC. It wouldn't matter if they got gross pay of €30,001, €40,001, or €50,001, all of those fall into the same USC band.

RobbieV

Do you get the relief in the form of an adjustment to your credits for the next year or how is it applied?

Happyhouse22

Basically the OP will get 40% relief on €800 and 20% relief on the other €800?