I understand it now and in my own mind it's a 32% rebate on the foregone immediate income i.e. less than the 40% that was actually deducted.
Of the 12.5K the government is still hanging onto €1k of the tax you'd paid.
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...)
You're right, I should re-run it with a 12.5k pension contribution
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 |
I think this is the error in your logic - tax is payable on the entire 12.5k, not 11k.Then tax @40% on the remaining €11,000 = €4,400
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.Really clever too because people seem incapable of grasping it.
I know that, as a matter of fact, that it's due on the entire €12.5K.I think this is the error in your logic - tax is payable on the entire 12.5k, not 11k.
No they don'tThe point being that either approach, applied consistently, results in the refund of the
income tax actually deducted.
5k is deducted. 5k is refunded..
More tax is deducted than is refunded.
40% tax, 8% USC, 4% PRSI5k is deducted. 5k is refunded.
10k AVC.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.
Yet again apples (€12.5K) and oranges (€10K).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.
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?
I don't think I understand your point.You can use some of the slices of your income that have been taxed at 0% and 20% to fund the cash flow required to put 12,500 cash into the pension.
The government take 5k income tax from 12.5k.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.
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%.
Nobody says that.Then they say but you only have €6,000
AgreedI don't think I understand your point.
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.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?
So if you were the Minister for Finance, how would you change things?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.
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