Bonus into pension

[coolaboola12]

Hi All
I am in the fortunate position of getting a bonus soon and have the option of putting it into pension. How does this work ?

Let say the bonus is 5000, does the 5k go into pension and i still pay the tax / PRSI and USC on it from my monthly pay?

Or will the tax be deducted first and the 5000 - tax be put into pension ?

Thanks for any help

 

[redstar]

I was in a similar situation last year.

You get income tax relief at source on the 5000 pension contribution (assuming your are PAYE). Just like any other pension contribution.
USC and PRSI are applied to your total [months Salary + bonus amount] and is deducted by payroll which you should see in the month that your bonus is paid.
The full 5000 will go into your pension.

More details here...

Tax relief for pension contributions

This page outlines the tax relief for pension contributions

www.revenue.ie

 

[Dave Vanian]

If your employer puts this as an employer contribution into your Occupational Pension Scheme, this bypasses salary and you don't pay PRSI or USC.

 

[coolaboola12]

I was in a similar situation last year.

You get income tax relief at source on the 5000 pension contribution (assuming your are PAYE). Just like any other pension contribution.
USC and PRSI are applied to your total [months Salary + bonus amount] and is deducted by payroll which you should see in the month that your bonus is paid.
The full 5000 will go into your pension.

More details here...

Tax relief for pension contributions

This page outlines the tax relief for pension contributions

www.revenue.ie

But will i pay income tax on the bonus out of my monthly payroll ?

 

[MugsGame]

If your employer puts this as an employer contribution into your Occupational Pension Scheme, this bypasses salary and you don't pay PRSI or USC.

Are you sure this is allowed? If an employee opts to receive their bonus as a pension contribution, this feels like salary sacrifice which should count as an employee AVC and would therefore be subject to PRSI and USC. As opposed to an employer habitually paying a portion of everyone's bonus as a employer pension contribution. If allowed, it would also be a way to circumvent the €115k reckonable earnings limit for employee contributions.

 

[MugsGame]

But will i pay income tax on the bonus out of my monthly payroll ?

Not if the pension contribution is processed through the same payroll.

Note that if the bonus is substantial (multiples of your monthly pay) and you use all of it for an AVC, the USC and PRSI can make a significant dent in your take home pay for that month.

 

[nest egg]

If your employer puts this as an employer contribution into your Occupational Pension Scheme, this bypasses salary and you don't pay PRSI or USC.

Not in my experience, this wasn't entertained (large MNCs). Bonus always through payroll less pension AVC, USC & PRSI paid.
MugsGame is spot on, you need to manage your cashflow if you make a significant contribution as the USC and PRSI can be substantial.

 

[Redzer]

An alternative would be to receive the bonus through the normal payroll channel and to separately make a lump sum AVC (of some or all of it) to your pension provider. You can backdate this into last years Pension if you do it before October and immediately claim back the associated tax overpayment from last year's tax. This could allow you to avail of any underuse of age related max contribution limits.

 

[Dave Vanian]

Are you sure this is allowed? If an employee opts to receive their bonus as a pension contribution, this feels like salary sacrifice which should count as an employee AVC and would therefore be subject to PRSI and USC. As opposed to an employer habitually paying a portion of everyone's bonus as a employer pension contribution. If allowed, it would also be a way to circumvent the €115k reckonable earnings limit for employee contributions.

If an employee's contract of employment allows for variable employer contributions to the pension scheme it should be okay. Though Revenue don't want it to be a choice by the employee between salary or pension so reading the original post again, this one would fall on the wrong side of salary sacrifice rules.

 

[Kandarra]

I am in a similar situation with an upcoming bonus in September. I take it that if the employer puts it directly into the pension fund as an AVC that they cannot designate it as an AVC for 2022?
i.e. the only way to use up any AVC scope from 2022 is to take it as taxed income and make a separate AVC?

 

[DannyBoyD]

If its available to you, could put the bonus into an APSS & when it matures in 3 years time (tax free), pop that money into your AVC & pick up the tax benefit.