What happens when the revenue limit for pension tax relief is exceeded.

[ajapale]

I have come accross a situation where a number of employees get substantial performance bounses early in the tax year. In some cases they are opting to make a substantial contribution to their DC AVC scheme. This contribution will almost certainly breach revenue limits for the period but not for the whole year.

How do payroll systems deal with breaches of revenue age limits? Do they calculate the excess and charge tax on the excess? What happens in subsequent months when the pension contribution reverts to its normal level which is well within revenue limits.

They guys are adamant that they want the payment to go in now as they are afraid that if they wait they will have the money spent. Equally they do not want to go down the road of manually recovering PAYE and PRSI at a later date.



aj

 

[ClubMan]

Not sure if payroll software takes care of this but ultimtely it's the employee's responsibility to make sure that their tax affairs are up to date and correct. If they are incorrectly getting tax/PRSI/health levy relief at source on more than their age related pension contribution limit allows then it's their responsibility to deal with this.

 

[Conan]

ajapale,
dont see a problem here. If they get a bonus in say Feb and decide to invest some of this into AVC as a payment that month, the employer should be capable of deducting the AVC under the net pay rules and thus the member gets tax relief immediately. The only problem might be that if by the end of the tax year (Dec) the total AVC exceeded the allowed % of earnings (15%, 20% 25% etc).
The % limits apply to total taxable earnings in the tax year and I see no problem if the actual deductions from salary are lumpy (not spread evenly over the 12 months).