Lump sum purchase of notional service and income tax implications

J

justo

Registered User
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This year, I have earned some additional income above and beyond my PAYE earnings. As such, I have to pay income tax on this money next year.

I have a DB pension and I now have the opportunity to buy a year of temporary service which was the first year of my employment, when I was on a probationary period, before being made permanent. So this is a purchase of notional service I suppose.

I know I can get a tax reduction on the pension lump sum (e.g. if I pay €1000 lump sum towards my pension, it only costs me €600, right?) but can I use this pension payment to reduce the income tax I owe on the money earned in 2020?

I think I remember hearing this somewhere, but can't find any posts...
 
Any pension cont made reduces your income tax bill.

Payments for NSP are allowed as tax relief, subject to the usual limits.
 
Protocol said:
Any pension cont made reduces your income tax bill.

Payments for NSP are allowed as tax relief, subject to the usual limits.
Click to expand...

Thanks

Let's say I earned 5k above and beyond my PAYE income in 2020 and I want to make a lumpsum payment of 1.5k towards my pension. Do I still have to pay income tax on the full 5k or does the tax saving come as a rebate on the 1.5k? Or do I reduce the 5k by 1.5k and pay income tax on the remaining 3.5k? Sorry - I'm still confused!
 
If I earn 100k and my wife earns 25k on a three day week, and we are taxed jointly.

If she made pension contributions does she get relief at 20% or 40%?
 
You do a tax return. All income is included.

You make pension conts.

They are deducted from your gross income, to calculate your taxable income.

NB: there are limits to the tax relief.



Example: earn 50k in job and 10k in self-employment

Pay 5k in normal pension conts in job.

Pay an extra 5k in one-off pension conts, just that year.

Calculations:

gross income = 60k
Taxable income = 50k.

Pension conts = 16.67% of income, that is ok.
 
Protocol said:
You do a tax return. All income is included.

You make pension conts.

They are deducted from your gross income, to calculate your taxable income.

NB: there are limits to the tax relief.



Example: earn 50k in job and 10k in self-employment

Pay 5k in normal pension conts in job.

Pay an extra 5k in one-off pension conts, just that year.

Calculations:

gross income = 60k
Taxable income = 50k.

Pension conts = 16.67% of income, that is ok.
Click to expand...
Sorry I don't understand what you are saying in relation to the question. Should I do a tax return to see what amount the relief is is it? Without actually doing it first? Just seeing the answer? If that's allowed I'll do that so.
 
To close the loop... and for future readers with the same query

I contacted Revenue through My Account, 'Enquiry' Section. I notified them of the lumpsum payment and provided them with a letter of confirmation from my old employer that the payment had been made. I outlined the steps I intended to make MyAccount, to declare the payment and asked if I was on the right track...

Revenue responded within a few days and actually made the adjustment for me. They issued me with a revised Tax Certificate and the lumpsum was included as a tax credit.
 
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