A friend of mine asked me to calculate what contribution she should make to an AVC in order to take maximum advantage of the tax relief available.
Initially I thought I could probably answer the question easily but its quickly become clear it might not be as simple as I thought.
She is public sector in her mid forties, her annual gross is 80,575 and she has a small additional income linked to her main employment that was worth 5,432.
She paid tax of 16,447, a pension contribution of 7,943 (comprising of “pensions grouped” and “Additional Superannuation Contribution (A” aka ASC I presume) and 1230 spouses and children on the main employment and the total income tax paid on the 5,432 was 2,172…its under prsi class S0/S1…I haven’t included USC and salary protection deductions in that as I assume they don’t affect calculation?
As she is between 40 and 49 and below the 115,000 is it as clearcut as saying she can contribute 86,007 x 25% = 21,501.75 to an AVC and get 8,600 of that back in tax relief?
Or do you have to take other things into account like reducing the gross by the amount of pension related deductions
Eg: 86,007 – 7,943 -1,230 = 76,834
then 76,834 x 25% = 19,208.50
contribute 19,208.50 to an AVC and get 7,683.40 of that back in tax relief
Or can you only get 40% back on the portion of income that was taxed at 40%
Eg: if she has a SRCOP of 42,000 (I don’t know what it is but just for the purposes of the example)
Then anything above 42,000 is taxed at 40%
So 86,007 -42,000 = 44,007
44,007 X 40% = 17,602 is paid at 40%
Within percentage limit (which she could be within as it might be 21,501 or 19,508) she can claim relief at 40% on up to 17,602?
So her max contribution to avail of the maximum tax relief at 40% should be 17,602?
Apologies if I’m making a total mess of this, what initially seemed straightforward has given me and no doubt any readers of this a headache!
One of the reasons she asked is she has a small business on the side and is under the impressions she has to make the maximum contributions to her AVCs in order to contribute to a separate PRSA for any profit she might make in the business.
Anyway I would appreciate any guidance. Is there a simple formula somewhere or am I just overcomplicating things and it’s the first calculation…ie: 86,007 x 25% = 21,501.75 to an AVC and get 8,600 of that back in tax relief?
Initially I thought I could probably answer the question easily but its quickly become clear it might not be as simple as I thought.
She is public sector in her mid forties, her annual gross is 80,575 and she has a small additional income linked to her main employment that was worth 5,432.
She paid tax of 16,447, a pension contribution of 7,943 (comprising of “pensions grouped” and “Additional Superannuation Contribution (A” aka ASC I presume) and 1230 spouses and children on the main employment and the total income tax paid on the 5,432 was 2,172…its under prsi class S0/S1…I haven’t included USC and salary protection deductions in that as I assume they don’t affect calculation?
As she is between 40 and 49 and below the 115,000 is it as clearcut as saying she can contribute 86,007 x 25% = 21,501.75 to an AVC and get 8,600 of that back in tax relief?
Or do you have to take other things into account like reducing the gross by the amount of pension related deductions
Eg: 86,007 – 7,943 -1,230 = 76,834
then 76,834 x 25% = 19,208.50
contribute 19,208.50 to an AVC and get 7,683.40 of that back in tax relief
Or can you only get 40% back on the portion of income that was taxed at 40%
Eg: if she has a SRCOP of 42,000 (I don’t know what it is but just for the purposes of the example)
Then anything above 42,000 is taxed at 40%
So 86,007 -42,000 = 44,007
44,007 X 40% = 17,602 is paid at 40%
Within percentage limit (which she could be within as it might be 21,501 or 19,508) she can claim relief at 40% on up to 17,602?
So her max contribution to avail of the maximum tax relief at 40% should be 17,602?
Apologies if I’m making a total mess of this, what initially seemed straightforward has given me and no doubt any readers of this a headache!
One of the reasons she asked is she has a small business on the side and is under the impressions she has to make the maximum contributions to her AVCs in order to contribute to a separate PRSA for any profit she might make in the business.
Anyway I would appreciate any guidance. Is there a simple formula somewhere or am I just overcomplicating things and it’s the first calculation…ie: 86,007 x 25% = 21,501.75 to an AVC and get 8,600 of that back in tax relief?