Do I save USC and PRSI by making an AVC?

J

jimmij

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Ignoring pension contributions, say you earn €100k per annum
The 10k between 90 and 100k is taxed at 40% but also 4% PRSI and 8% USC
You end up getting €4,800 into your hand
If instead you pay that 10k into an AVG, there's no tax or PRSI
liability but I think USC still need to be paid on it?
So your net income will drop by €4800 + 800 = €5,600 as compared to if
you'd taken the full disposable income into your hand.
Is that right?
 
jimmij said:
Ignoring pension contributions, say you earn €100k per annum
The 10k between 90 and 100k is taxed at 40% but also 4% PRSI and 8% USC
You end up getting €4,800 into your hand
If instead you pay that 10k into an AVG, there's no tax or PRSI
liability but I think USC still need to be paid on it?
So your net income will drop by €4800 + 800 = €5,600 as compared to if
you'd taken the full disposable income into your hand.
Is that right?
Click to expand...
The USC and PRSI are getting paid either way, so they don't factor into the calculation. You are losing out on value of the 10k after income tax @40%, which is 6k. Your pay packet is down 6k, but your pension is up 10k.
 
Brendan Burgess said:
If you employer contributes the €10k directly into the pension fund, you pay no tax, prsi or USC

Brendan
Click to expand...
I don't understand why employers don't offer people an option of receiving e.g. half their income as an employer pension contribution.

My company pay 8% straight up, but if I could Id have them reduce my salary and up the %.
 
Bear in mind your employer pays no employer PRSI on pension contributions.

Rate is currently 11.05%. I think a lot of employees aren’t aware of how beneficial it is to their employer to make compensation in pension contributions rather than wages.
 
Brendan Burgess said:
If you employer contributes the €10k directly into the pension fund, you pay no tax, prsi or USC

Brendan
Click to expand...
This is very interesting.
In the example I gave at the start, if the person was actually being paid through his own company of which he was the director, could he reduce his salary to 90k and have the company pay 10K in AVCs (or maybe into a PRSA).
His net salary would drop by 4.8k which would be the net cost of the 10k going into the pension or would this fall foul of Salary Sacrifice restrictions as mentioned by Fortune?
If not, then with no PRSI or USC applicable on the 10K that would be a saving €1200 as opposed to having it deducted from salary!
 
jimmij said:
This is very interesting.
In the example I gave at the start, if the person was actually being paid through his own company of which he was the director, could he reduce his salary to 90k and have the company pay 10K in AVCs (or maybe into a PRSA).
His net salary would drop by 4.8k which would be the net cost of the 10k going into the pension or would this fall foul of Salary Sacrifice restrictions as mentioned by Fortune?
If not, then with no PRSI or USC applicable on the 10K that would be a saving €1200 as opposed to having it deducted from salary!
Click to expand...
As Fortune said it looks like the salary sacrifice options don't include pension benefits. Revenue states Travel Pass, Share awards and bike to work.

That said my company pay some extra pension when we do well. I do think technically a 'Pay cut + higher Employer pension contribution' would be doable
 
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