A host of measures to allow workers manage their tax bill, writes Brian Keegan.
It’s around this time of the year when most employees get a stark reminder of all the tax, USC and PRSI they pay. The annual P60, which by law your employer must provide, adds up and summarises all the money you’ve paid over to the State under PAYE. It really does add up.
Last year, according to figures from the Department of Finance, a single person on PAYE earning €25,000 a year would have paid €1,700 in income tax, €1,000 in PRSI and €668 in USC. That’s a total of €3,368. It gets a lot worse further up the income ladder.
The total paid by a single person on €70,000 is €23,883 — more than a third of their wages. There’s not a lot you can do as an employee to manage your tax bill. Most methods of saving tax involve spending more money on something else. But here are a few ideas which could result in your seeing a little more in your weekly or monthly wage packet, and none of them are too complicated to do.
Cycle to Work: Tax relief is available under the scheme for the cost of a bicycle and safety equipment bought to use for cycling to work. You can swap some of your salary over a year in exchange for your employer buying the bike and some gear to go with it for you. The maximum cost qualifying for relief is €1,000. So if your employer purchases a bicycle, helmet and lights for a total of €1,000 on your behalf instead of paying you €1,000 in salary, the net cost to you (assuming 40% tax, 5% USC and; 4% PRSI) will be €510. Depending on the way your employer operates the scheme, you generally need to provide evidence of the bike purchase, and the tax relief is then operated through payroll over the period of your choice.
Flat Rate Expenses: Revenue has arrangements in place to grant flat rate expenses for employees working in a range of activities. Nurses, optometrists, panel beaters, grooms, musicians, journalists and air crew, to name just a few, may claim fixed expenses provided certain conditions are met. The easiest way to check if you are eligible is to go onto the Revenue website at revenue.ie and search for ‘List of Flat-Rate Schedule E Expenses’. There is no need to keep receipts to claim this relief.
Travel Passes: This is really useful for anyone using public transport to commute to work. Employees can receive a monthly or annual travel pass for use on the bus, train, Luas and DART from their employer without a charge to tax. You can do a deal with your employer to swap some of your salary in exchange for the travel pass without creating a tax problem.
Pension Contributions: Pensions remain one of the most tax efficient investments an employee can make, and especially straightforward if you can pay into the company pension scheme.
Premiums paid by an employee into a Revenue-approved pension scheme reduce the amount of income taxed when calculating your PAYE liability. There are some restrictions. The maximum allowable deduction depends on both your age and your earnings, and there are rules for calculating the earnings limits.
In general, there is an earnings cap of €115,000. Always remember with pensions, though, that it’s not just about tax. It’s about having some money to hand for your retirement.
I mention this last idea because it doesn’t seem to be very widely known, even though it’s one of the most generous reliefs in the tax code. If you employ a carer to take care of a family member who is totally incapacitated you are entitled to a deduction of up to €75,000 at your highest rate of taxation. That can make a massive difference to the family finances.
Not all of these tax reliefs will apply to you. Some of them involve making investment or spending decisions. But at least there are still allowances and reliefs in the tax system which just might suit you.
Brian Keegan is director of public policy and tax at Chartered Accountants Ireland
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