€10K PRSA example, doesn't sound all that great a deal

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jimmij said:
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%.
Click to expand...

Income Tax at 40% on €12,500 = €5,000.

Tax relief on a pension contribution of €12,500 at 40% = €5,000.
 
Fortune said:
10k with 40% income tax deducted. Are you asking for a refund of more income tax than you actually paid?
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That seems to be the case alright.
6 pages in and the original poster is still convinced that they're right in spite of the overwhelming evidence to the contrary.
It beggars belief... o_O
Maybe this is the Askaboutmoney equivalent of Candid Camera or something?
 
ClubMan said:
That seems to be the case alright.
6 pages in and the original poster is still convinced that they're right in spite of the overwhelming evidence to the contrary.
It beggars belief... o_O
Maybe this is the Askaboutmoney equivalent of Candid Camera or something?
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I've always thought the pension industry calling it 40% tax relief was a bit weird. It should be presented in the same way as it would for a company; an allowable deduction. Although, having thought that, I never expected it could confuse punters so badly.
 
jimmij said:
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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What are you talking about?

The only confusion happening on this thread is your inability to reconcile the fact that there is more than 1 tax applied to your income and you are conveniently taking the maximum of each of this to come to your incorrect conclusion

€10K PRSA example, doesn't sound all that great a deal

For the avaoidance of doubt, here is an example of tax when not payng to a pension and when paying 10k to a pension. Note the net income is reduced by €6k for a €10k pension contribution, clearly showing incometax relief at 40%. 2024 2024 Diference Annual salary (before pension...
www.askaboutmoney.com

Going back to @Fortune example of €100k gross income, the effective tax rate on the entire €100k is 36.4%, soon to be 35.4% with budget changes. You are choosing to ignore tax credits and bands in your own calculations and only taking max rates, why??

Following your logic, should I tell revenue that we shouldn't get 40% back and it should really only be 35.4%??
 
3CC said:
So if you were the Minister for Finance, how would you change things?
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I'd have it so that just as tax is calculated on gross salary so too should rebates be determined in that way.

Then if returning the actual tax paid on a tranche of gross income is too much for the exchequer to stomach I'd announce
a relief rate lower than the taxation one.

So in the case of our €12,500 the refund rate might be 32% (€4,000) while the tax rate is 40% (€5,000).

The worst aspect of the current system, apart from it being misleading is that effective refunds are dependent on the rate of PRSI and USC.
 
jimmij said:
So in the case of our €12,500 the refund rate might be 32% (€4,000) while the tax rate is 40% (€5,000).
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No:

€10K PRSA example, doesn't sound all that great a deal

For the avaoidance of doubt, here is an example of tax when not payng to a pension and when paying 10k to a pension. Note the net income is reduced by €6k for a €10k pension contribution, clearly showing incometax relief at 40%. 2024 2024 Diference Annual salary (before pension...
www.askaboutmoney.com

2024-11-13 13 05 52.png
 
Dave Vanian said:
Income Tax at 40% on €12,500 = €5,000.

Tax relief on a pension contribution of €12,500 at 40% = €5,000.
Click to expand...


You can quote any amount you like and do it so long as you have the dosh up front and your allowances allow it.
The real problem is that the method of calculating refunds leaves people with less than their salary (net of PRSI/USC) to put into AVCs in the first place.

I have a €12,500 taranche of gross salary that I'd like to forego in favour of buying AVCs
€1,500 is taken away to pay USC/PRSI
€5,000 was taken away in tax but they'll only refund €4,000 of that.
So because I can't magic up money I haven't earned the most I can fund (with the aid of a bridging loan) is €10k in AVCs
 
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