PRSI credits are crucial if you want social welfare benefits
For most of us, PRSI is seen as simply an additional tax, without actually understanding what benefits if any can come from paying into this “Social Insurance”.
For self-employed persons, including farmers, sole traders and company directors, PRSI is normally paid at 4% of profit or wages, under “Class S” PRSI.
Class S gives the following benefits: State Pension (Contributory); Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) Pension; Guardian’s Payment (Contributory); Maternity Benefit; and Adoptive Benefits
For each of the above benefits there are minimum periods of PRSI payable before any benefits can be accessed.
The rules for each benefit can be complex. For example, maternity benefit is only payable to expectant mothers who, if they intend on claiming maternity benefit in 2014, must have at least 52 weeks of PRSI paid in 2012, or 52 weeks of PRSI paid in 2013 or, failing that, 52 weeks paid in 2011. In addition, the PRSI paid will only count if the person had at least €5,000 of earnings (profits) in any of the years.
For a new entrant to the workforce or into self-employment, understanding these rules can actually make the difference between qualifying for maternity benefit or not.
On farms, given that 92% of farmers are males, understanding the rules of this particular benefit might seem of little relevance, but many households have wifes, daughters or sisters who may at some point need to access these types of benefit.
In terms of qualifying for the State Pension, a farmer who earns less than €5,000 in farm profits in the year, and has not paid PRSI on any other form of income (such as off-farm wages, etc) is generally not covered by the social insurance system.
If you find yourself in this situation, there are options to make “voluntary” PRSI contributions. For the self-employed who earn below €5,000 per annum, voluntary contributions at a cost of €500 per annum are pretty expensive, but will buy you 52 weeks of a PRSI record, and this can make a significant difference, particularly later in life when looking to access a State Contributory Pension.
Historically, many farmers’ wives gave up employment, or were forced to give up employment, after marriage, and the legacy of their removal from the workforce can cause significant difficulties later in life, particularly at pension age. There are many farmers’ wives who, having contributed to the farming business for the majority of their working lives, find themselves unrecognised in terms of entitlement to any State Pension.
For some, there may be a case to be made to the Department of Social Protection under the farm spouses scheme to have their PRSI record amended, this is applicable where the spouse was actually working in partnership with the farmer, but that partnership hadn’t been formally recognised previously.
In these cases, it is necessary to apply to the Department of Social Protection, ideally supporting the application with documentation proving that a partnership did exist. This can be evidenced by joint area-aid applications, joint names on the herd number, joint bank accounts, or sworn statements from relevant persons who conducted business with the farmers.
Applying for this scheme should be given careful consideration, because the splitting of the existing PRSI record into two may actually create a disadvantage, this is particularly the case where only minimum PRSI payments were made.
On the other hand, where both spouses qualify for the pension, the additional income, and indeed the tax savings from an additional PAYE credit available in respect of each spouse’s pension, can be significant.
As outlined above, where both spouses work in partnership, each is entitled to make PRSI contributions.
Recent clarifications from the Department of Social Protection have confirmed that persons who have income arising from assisting their spouse in the running of their business (but who are not employees) are also entitled to make PRSI contributions. This opens up an extra avenue to ensure persons are making best use of their social insurance records.
However, the status quo for self-employed persons employing their spouses still remains, in these cases, no PRSI is payable.
In this context, it is worthwhile considering whether your family arrangements are optimising each person’s position for PRSI benefits.
