Is this a tax anomaly I see before me?

M

michaelm

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Assuming that one doesn't have a medical card (or meet the two or three other criteria for avoiding the 4% health levy) and given that the threshold for paying the health levy is €500/per week it seems to me that someone earning €26000 will have the same after-tax pay as someone earning €27485; and someone earning between the two figures will take home less than someone on €26000.

If I was in that situation I'd probably be looking at taking unpaid leave or parental leave (to bring my wage down to <€26k for the year), effectively getting time off for no cost (even if I earned a little more than €27485 I be tempted to take extra holidays at little cost).

I may be missing something obvious here, perhaps someone might point out same.
 
You're not missing anything, there are points along the PRSI scale where one can have a greater net pay for a lesser gross pay. This arises where the deduction , levy or whatever, applies on all the gross pay, not just that over the threshold being exceeded. At €289 pw no I/Levy applies. At €290 pw 2% applies on all resulting in a deduction of €5.80. This happens similarly with the Health Contribution on the €500 threshold as you mentioned, it's just the way the calculation works.
 
Brian Lenihan indicated in the budget that the whole PRSI system is up for review for 2011 so you would have to hope that these annoying little anomalies will be eradicated once and for all.
 
Graham_07 said:
. . there are points along the PRSI scale where one can have a greater net pay for a lesser gross pay.
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And always have been as far back as I can remember; but since the doubling of the Health Levy to 4% this anomaly is IMHO sizeable, as someone earning €27.5k could effectively take a additional 3 weeks holidays at no net cost to themselves.
 
I use a payroll package for some clients work and it actually prompts you when this happens and suggests that a lesser gross might be more beneficial to the employee (and employer since it's less to be charged for ER PRSI too )
 
Graham_07 said:
I use a payroll package for some clients work and it actually prompts you when this happens and suggests that a lesser gross might be more beneficial to the employee (and employer since it's less to be charged for ER PRSI too )
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This has been the case for sometime and with many packages and it is something people need to keep an eye out for. Employees always think it is weird when you tell them that by paying them less that they will receive more!
 
Irish Spirit said:
graham what is the name of this package?
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Thesaurus Payroll from www.thesaurus.ie

For example, if you put in €500 as gross pay you get a prompt advising it's class AL, then if you put in €502 for gross pay you get a prompt for class A1, then if you go to update the pay amount a new screen comes up "PRSI computational anomaly", which shows the effect of being just €2 into the new class and it costing some €20 in Health Contribution.

(no connection with the relevant company, just a satisfied user of their software)
 
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