Pension Tax Relief

tldr;
I am looking at PRSA, Pension Tax Relief and I am unsure of a few things.

A quick yes/no answers are all I am looking for, but ofcourse if I made a mistake somewhere, misunderstood something or missed anything, I would be greatful if you could point it out!

How is the pension tax relief calculated on a €40,000 income?
1) Is it in bands, with the maximum contribution amount being split into lower (about €1,765) and higher (about €470) rates, where the total relief is €2,235?
2) Relief is going to be 40% for the whole maximum contribution, with no bands, giving a total relief of €4,000?

What happens if circumstances change, and where I was once looking at earning €40,000 for the year, paying higher taxes in my weekly payslips for half of the year, but my hours were then reduced and I will only earn €30,000 for the year. Can I still get that 40% tax relief or does it drop to 20%?

If I earn €35,299. Should I try and negociate a pay of €35,301 to hit that higher tax bracket?

Thank you!





##### Bit of background, a few questions, numbers and calculations #####

Hi,

I am looking at different Personal Retirement Savings Accounts (PRSA), and I am unsure of how the Pension Tax Relief works.

A quick yes/no answers are all I am looking for, but ofcourse if I made a mistake somewhere, misunderstood something or missed anything, I would be greatful if you could point it out!

I understand that there are different maximum % of earning that can be used as tax relief by age, such as 25% in the 40 to 49 age bracket. I am confused what is meant by the "marginal" or the "prevailing" rate of income tax when calculating the tax relief. Does it mean "use the 40% rate for everything once you are over the standard cutoff point"?

In a scenario where I am single, earn €30,000 gross annually, and am in the 40 to 49 age bracket, from my understanding my relief rate would be 25%, so for every €1,000 paid, I would get €200 back. And my optimal payments would be upto €7,500 (25% of €30,000), where I would recieve €1,500 in tax relief.



Now, what happens if I was in the same scenario, except earning €40,000, putting a portion of my income in the higher tax bracket? I understand that my optimal payments would be upto €10,000 (25% of €40,000).
Option 1) My tax relief works similar how income tax works with different rates and bands. For example, get 20% tax relief on my payments upto €8,825 (25% of €35,300), giving me €1,765 in tax relief. Then the remainder of my income (€35,300 to €40,000) is going to get relief at 40%, giving me about €470 (40% of (maximum relief allowable - lower band)... i.e, 40% of (€10,000 - €8,825)). This would result in total tax relief of €2,235.

Option 2) The tax relief is 40% on everything, upto €10,000 (25% of €40,000). Which would mean a total tax relief of €4,000.


From my reading around, option 2 describes how it works - but it seems a bit too good to be true! Can anyone confirm?



Should option 2 above be correct, this raises a few more questions:
Q 1) Say I earn €35,299. Should I try and negociate a pay of €35,301 to hit that higher tax bracket?

Q 2) What happens if you were looking at €40,000 annual income but lost your job 9 months into the tax year (the tax year being 1st Jan to 31st Dec?). This would mean an earning of €30,000. Does this mean the tax relief would instead be 20% (on 25% of €30,000), as at the end of the year income taxes would be adjusted and taxes paid at 40% would be refunded?

Q 3) Provided my Q2 understanding is correct, starting a job 3 months into the tax year would also give me 20% tax relief since my potential earning would be capped at 9/12 of €40,000 (9 out of 12 months left). Similarly, if my hours were reduced (as is now the case for some due to COVID), one could also not pass that €35,300 income threshold and only be entitled to 20% tax relief on their earnings?



Thank you!