€10K PRSA example, doesn't sound all that great a deal
- Thread starter jimmij
- Start date
- Status
You're right, I should re-run it with a 12.5k pension contributionYeah, but €4K is only 32% of €12.5K!
(Yes, I'm being sarcastic...)
2024 | 2024 | Diference | |||
| €100,000 |
| €0 | ||
| Annual salary (after pension contributions) | €100,000 | €87,500 | €12,500 | ||
| Gross income | €100,000 | €87,500 | €12,500 | ||
| Income tax | €42,000 | €42,000 | |||
| @ 20% | @ 20% | ||||
| €8,400 | €8,400 | ||||
| €58,000 | €45,500 | €12,500 | |||
| @ 40% | @ 40% | ||||
| €23,200 | €18,200 | €5,000 | |||
| €31,600 |
| €5,000 | ||
| Personal tax credits (less) | -€3,750 | -€3,750 | |||
| Net tax due | €27,850 | €22,850 | €5,000 | ||
| PRSI | €4,025 | €4,025 | |||
| Universal social charge | €4,503 | €4,503 | |||
| Net income | €63,622 | €56,122 | €7,500 |
Nothing in the preceding tables adds anything new, imo.
There is an inconsistency of approach to deductions as opposed to refunds
which benefits Revenue.
Hypothetically, if the taxation rules were consistent with the manner with which refunds are calculated
then tax would only be deducted from the sum remaining after PRSI/USC are deducted.
Gross 12,500
Less €1,500 PRSI/USC
Then tax @40% on the remaining €11,000 = €4,400
So then Net €6,600
This €6,600 when grossed back up results in €11,000 so all €4,400 tax is returned.
Or alternatively, keep taxation rules as they are now but calculate refunds in a manner
that returns the actual tax deducted.
So add the PRSI/USC back to the net = €7,500
Gross that up = €12,500
Finally deduct the €7,500 again to calculate the refund = €5,000
The point being that either approach, applied consistently, results in the refund of the
income tax actually deducted.
An inconsistent approach results in an unfair outcome for one party or the other.
Really clever too because people seem incapable of grasping it.
There is an inconsistency of approach to deductions as opposed to refunds
which benefits Revenue.
Hypothetically, if the taxation rules were consistent with the manner with which refunds are calculated
then tax would only be deducted from the sum remaining after PRSI/USC are deducted.
Gross 12,500
Less €1,500 PRSI/USC
Then tax @40% on the remaining €11,000 = €4,400
So then Net €6,600
This €6,600 when grossed back up results in €11,000 so all €4,400 tax is returned.
Or alternatively, keep taxation rules as they are now but calculate refunds in a manner
that returns the actual tax deducted.
So add the PRSI/USC back to the net = €7,500
Gross that up = €12,500
Finally deduct the €7,500 again to calculate the refund = €5,000
The point being that either approach, applied consistently, results in the refund of the
income tax actually deducted.
An inconsistent approach results in an unfair outcome for one party or the other.
Really clever too because people seem incapable of grasping it.
I think this is the error in your logic - tax is payable on the entire 12.5k, not 11k.
If you cannot convince most people of your argument, it would be odd to conclude that they are incapable of grasping it. A simpler explanation would be that you are incorrect. Occam's Razor is against you here.
Either way, I don't think there is much more that can bring this discussion forward. It's all been said at this stage.
Last edited:
No they don't
5k is deducted. 5k is refunded.
40% tax, 8% USC, 4% PRSI
Of €12,500 gross funding €10,000 in AVCs, €5,000 tax deducted and €4,000 refunded.
Final situation:
€10,000 in the pension, €1,500 in PRSI/USC and €1,000 still with Revenue.
10k AVC.
Outside of the AVC, 4k income tax would be deducted. Put into an AVC, 4k income tax is refunded
Yet again apples (€12.5K) and oranges (€10K).
And you wonder why the clever Askaboutmoney people don't get your point?
Where I differ from you guys is that I'm looking at it from the point of view of getting the income tax returned that you paid on the gross income whereas you're looking at it from the p.o.v. of getting the tax back on the net income they leave you.Yet again apples (€12.5K) and oranges (€10K).
And you wonder why the clever Askaboutmoney people don't get your point?
Those would amount to the same thing but for the effect of other deductions.
Imagine it's done this way.
The government takes away 40% tax on €12,500, i.e. €5,000 leaving you with €7,500
Then they take away €1,500 in PRSI/USC.
Then the government says that they are going to refund you the tax you paid.
You say that'll be €5,000 please.
Then they say but you only have €6,000 so that means you're only getting €4,000 because
€6,000 only grosses up to €10,000.
The fact that you'd have €7,500 but for the other money they took off you is ignored.
Because of that the effective tax relief is 32%.
I don't think I understand your point.
For most lifestyles that money is promised right away in living expenses I'd imagine
The government take 5k income tax from 12.5k.
You pay 10k to a pension, but expect the get 12.5k worth of a refund (ie 5k) so then complain they are ripping you off?
Nobody says that.
Agreed
You can't expect to get a refund of income tax on the net income that you have spend and not paid into a pension.
It's €10,000 into a pension but if they returned all the tax that they'd deducted it would be €11,000.
Any commercial enterprise calculating refunds in such a manner would probably be in breach of consumer law because the 40% relief
is calculated on a lower figure than the original tax deduction. It's sharp practice, at best.
So if you were the Minister for Finance, how would you change things?
- Status