Taxation Flaw In Ireland

[sixdraw]

Hi all, many of you may be aware of this but I thought the issue needed to be highlighted further.

It is currently possible in Ireland to earn a higher salary yet take home a lower net income to someone with the exact same circumstances with regard to taxation.

This is due to the health levy which is not charged at all on a salary below or equal to Eur 26,000 per annum but chargeable on the full amount on a salary of Eur 26000.01 per annum or greater.

Therefore there is a salary band between 26000.01 and somewhere around 27400 where you actually earn less than someone earning 26000 per annum.

The only way around this is to contribute to a pension scheme which is deducted before tax.

 

[sixdraw]

I have contacted the legal advisor to the EU commission regarding this matter and the levy lies outside of the scope of EU law.

It would be illegal however for an EU government to impose a tax system where such an outcome was possible.

I have recently been promoted and as a result earn less take home pay. Great!

 

[papervalue]

you be better off stay on 26k explain increase makes little difference to net pay, and look for a few days extra holidays or 35h week instead of 39h etc to compensate in promoted job

really also depends on if you are staying their long term, you want a rise every so often, and you have to start somewhere or you be stuck on 26k forever

 

[Towger]

This is the way it has been for years, I don't see you getting very far. You could also argue that Irish SW rates are so high you are better off staying at you subsidised/free home watching TV than going out to work for €26k.

 

[Protocol]

This is a well known anomaly, and has been around for years.

 

[Graham_07]

This is so well established that some payroll packages even prompt when the anomaly occurs and advised that a lower pay may result in higher take home pay.

 

[igy]

Does anyone have a tax calculator in spreadsheet form, which shows a graph of take home pay versus gross? I'd be interested to see where these anomalies lie

 

[Graham_07]

Does anyone have a tax calculator in spreadsheet form, which shows a graph of take home pay versus gross? I'd be interested to see where these anomalies lie

The problem with the H/Contrib and the I/Levy are once you exceed the threshold, you are chargeable on ALL income, not just that over the threshold, so for example at €288 gross no I/Levy chargeable. At €290 gross I/Levy of €5.80 becomes payable leaving the individual getting €2 more gross and worse of by €3.80 at the end. I have an excel spreadsheet done in the style of a standard tax deduction card which one can input tax credits & SRCOP, then put in various gross amounts and see the relevant nets. I can email this if you want to look further at it. Just PM me.

 

[sixdraw]

is there any ways around this aside from prsa contributions. I read somewhere about deferring pay and instead receiving it as a christmas bonus?

 

[Graham_07]

is there any ways around this aside from prsa contributions. I read somewhere about deferring pay and instead receiving it as a christmas bonus?

Bonuses or other additions to pay are taxable / levy-able so I do not see this as a "way around it"

 

[deadlyduck]

is there any ways around this aside from prsa contributions. I read somewhere about deferring pay and instead receiving it as a christmas bonus?

I think the poster is referring to my contribution on this post:

http://www.askaboutmoney.com/showthread.php?t=129278

That idea seems to work unless I'm missing something- the basic point is that the Health levy is avoided in 11 of the 12 months and only payable in the 12th month. All the other levies/ charges are of course payable but you save on the health levy in the months where your gross is less than an annual equivalent of €26000.

Does anyone have a tax calculator in spreadsheet form, which shows a graph of take home pay versus gross?

Check out my calculator at http://taxcalc.eu/monthlyss- it includes a pie-chart facility to show the split of your various deductions from gross.

 

[sixdraw]

Yes you stand to save €950 a year by doing this.
Thanks for your replies.

Does anyone know if there are any other obstacles with having your salary above 26000 paid in a lump sum at the end of the year apart from convincing your boss to agree?

That said it's a no-brainer for a company. The extra €2500 goes into a deposit account earning 4% per year, the employee saves over 3% salary. Or the funds are used to buy goods for the company on credit etc.
Win Win