Key Post PRSI and planning retirement

[S class]

PRSI is deducted from ARFs under the PAYE tax system.

ARFs are set up almost identical to a PAYE employment. Drawdowns are paid with income tax, USC and Prsi deducted at source. The only difference is that class S Prsi is applied, rather than class A Prsi.

This means that employee Prsi is deducted @ 4.2% directly from each drawdown.

If you drawdown 5k per year you will currently pay €210 Prsi.

The minimum €650 Prsi is only payable when Prsi is paid under the self assessment system. This increased from €500 approximately 2 years ago.

5k ARF drawdowns can be a better option than voluntary contributions in many situations.

 

[mmclo]

So that e210 will still give you 52 contributions each year if drawing it from an ARF, by self assessment we mean form 11? I can imagine many would use from 12 for some minor things like DIRT, that doesn't put you in the self assessment category?

 

[1dave123]

@S class Hi there and thanks for all your valuable contributions.

In a situation where an ex employee is drawing down an ARF (PAYE) - say 5500pa but also has gross deposit interest of say 5,100 and so has to complete a Form 11 .... will they not get the 52 Class S pension contributions because they are below the 650 PRSI minimum?

 

[S class]

can imagine many would use from 12 for some minor things like DIRT, that doesn't put you in the self assessment category?

It doesn't matter how you do your tax return, or indeed if you don't make any tax return.

Because the class S Prsi is paid to DSP automatically from ARF drawdowns at source under the PAYE system, you will automatically get 52 class S on 5k drawdowns on your Prsi contributions statements.

 

[S class]

In a situation where an ex employee is drawing down an ARF (PAYE) - say 5500pa but also has gross deposit interest of say 5,100 and so has to complete a Form 11 .... will they not get the 52 Class S pension contributions because they are below the 650 PRSI minimum?

In this situation they will get 52 class S from their ARF.
They will get a separate 52 class S from their deposit interest.

Only 52 of their total of 104 class S would be reckonable.


I haven't been in this position so I am guessing.

They would probably be subject to the minimum of €650 Prsi because of their deposit interest.

Maybe the amount of Prsi already deducted at source from their ARF drawdowns would be included in the €650 minimum Prsi payment.

Assuming that form 11 would automatically deduct €650 from the deposit interest. (no PAYE deducted Prsi is included on form 11, so the form 11 is not aware that they have already paid some Prsi on their ARF)


They would have total income liable to class S of €10600, so they should not be liable to more than €650 Prsi.

They might have to claim the excess charge back from DSP.


Another layer of confusion...
Because they have an ARF and are paying class S on this, they will be liable to class S on the deposit interest.

Without an ARF, and if they had other income sources such as an occupational pension or PAYE employment their deposit interest would be liable to class K Prsi. If they were class K on their deposit interest they would only be liable to Prsi of 4.2% of €5100.

 

[1dave123]

@S class Thanks very much for the clarification. I only very very recently discovered that 5100 gross deposit interest ( 3417 net) still qualifies u as a chargeable person even if dirt is deducted at source I always thought it was the 'net' figure that was important (as the Revenue have already got their tax .. just like for PAYE employee)

I looked thru some very old tax returns where the threshold was 3174 (now 5000). I previously submitted FORM 12 tax returns where my interest was well in excess of this 3174 figure and the Revenue just processed as normal.

Nobody from Revenue ever came back to me to say I have to complete a form 11.

I try to follow the written rules as best I can but this PRSI/tax system confuses me no end. Thanks again.

 

[S class]

@1dave123
It's confusing for sure.

I have edited my last post several times while trying to figure out what might happen.

Recheck the last post because I edited it again after your reply.

 

[1dave123]

@S class

My conclusion is therefore - an ARF withdrawal of 5,000 pa will get u 52 Class S contributions provided u are not a chargeable person and subject to self assessment (form 11).

An ARF withdrawal of 5000 p.a. might get you 52 Class S contributions if you are a a chargeable person and subject to self assessment (form 11) but its less clear. You may need a minimum PRSI contribution of 650 ... meaning a gross assessable amount for PRSI of 15477 for 2025 (650/4.2%).

I dunno - my head is spinning. At the moment I am frantically trying to divest myself of some high paying deposit accounts so I don't breach the 5,000 (gross) limit for 2025.

 

[S class]

@1dave123
After further thought beyond post #265

Regardless of whether you are chargeable or not, you will have 52 class S paid at source from your ARF drawdowns.
These will be applied automatically to your Prsi record.

DSP have received these payments directly from your ARF provider. DSP add these to your record. So these are there no matter what happens with your form 11 return.

You then fill in your form 11 and add deposit interest.
You will be charged Prsi on the interest.

Form 11 doesn't know you have received 52 class S from your ARF.

Form 11 does know you have other sources of income alongside your deposit interest. I haven't tested this but presumably it is programmed to account for this.

A person with deposit interest alongside other income is liable to class K Prsi. There is no minimum payment for class K.

So when you fill in your deposit income, form 11 should deduct Prsi at 4.2% regardless of the amount of deposit interest inputted.

You could test this out by entering different amounts of deposit interest and letting form 11 calculate your Prsi total.

If you enter less than 5k it should apply 4.2%.
If you enter an amount slightly over 5k it should still apply 4.2%.
If this happens it is allowing for the fact that you have other income and might be liable to class K and is correctly applying the class K rules.

You will then be charged Prsi at 4.2% on your deposit interest regardless of the amount, and the minimum €650 charge does not apply.

It is DSP who then decide whether class K or class S will apply.
Their rule is that a person who pays class S on an ARF is entitled to class S on other unearned income, so they will add another 52 class S to your record for the deposit interest.

You are worrying unnecessary.

Play around with your form 11 before you submitt to verify all this.

 

[1dave123]

@S class Thanks very much for posting the extra thoughts. Very helpful indeed.

With a bit of luck & effort I might just come in just under the €5,000 for 2025 and so wont have to concern myself with all the subtleties. I am not registered for self assessment and have only ever used form 12.

As per above in some years 2010-2015 when the old threshold was €3174 I was materially in excess of this on some occasions and submitted a form 12 and Revenue accepted it.

Keeping my deposit interest just below rather than just above the €5,000 Gross Interest is the key objective now I think. Thanks again for your insights.

 

[LarryScott]

• Person aged under 66 whose only source of income is unearned and has an income of at least 5000 euro per year gains 52 S class.
• Person with PAYE income and unearned income will gain class K on their unearned income. This applies no matter how much unearned income they have.
• e.g. they could have one class A contribution and 100,000 euro unearned income and the unearned income is subject to class K.

How does this interact with class A credited contributions from credits only? I assume that doesn't count as PAYE income, so it doesn't convert them to class K?

If you had EUR 5000+ unearned income and some class A credited contributions in the same year, would get you class K or class S?

Also, can you have get credits-only if you are "earning" money from an ARF?

 

[S class]

How does this interact with class A credited contributions from credits only? I assume that doesn't count as PAYE income, so it doesn't convert them to class K?

Credited contributions don't change class S to class K.

If you had EUR 5000+ unearned income and some class A credited contributions in the same year, would get you class K or class S?

Class S

Be careful here because if you also have class M from an occupational pension or annuity, these will also convert your unearned income back to class K.

This doesn't happen if you have an ARF.

This also won't happen if you have some earned self employment income. This income can be any small amount.

Also, can you have get credits-only if you are "earning" money from an ARF?

Yes you can have credits alongside your ARF.

Signing on for credits alongside an ARF is a good idea if you are aiming to qualify for BP65.

 

[LarryScott]

Credited contributions don't change class S to class K.

Thanks for the information. I was wondering if sometimes it would be necessary to end them before a new year started.

Be careful here because if you also have class M from an occupational pension or annuity, these will also convert your unearned income back to class K.

This doesn't happen if you have an ARF.

Yeah, ARFs seem pretty useful here.

5000+ with an ARF overrides everything, right? You get always get 52 class S and maybe some others too.

Investment income over 5000 (so income subject to CGT + ETF income?) and no earned PAYE income means 52 class S?

Is deemed disposal income "unearned income" in that context, since you aren't technically making a gain. It is a prepay.

 

[ClubMan]

You get always get 52 class S and maybe some others too.

You can only get a maximum of 52 reckonable (for contributory pension purposes) PRSI contributions or credits in any one year.

 

[S class]

I was wondering if sometimes it would be necessary to end them before a new year started.

No need to stop and restart credits. The best policy is to keep signing on up to age 66. Just in case there are changes made to class S rules.

5000+ with an ARF overrides everything, right? You get always get 52 class S and maybe some others too.

5k + from an ARF guarantees 52 class S.

But if you have any amount of ARF drawdowns + other unearned income subject to Prsi, which together amount to 5k + you are guaranteed 52 class S.

For example ARF drawdowns of 1k + deposit interest of 4k guarantees you 52 class S.

Investment income over 5000 (so income subject to CGT + ETF income?) and no earned PAYE income means 52 class S?

ETFs are complicated. If they are subject to exit tax no Prsi applies.

Capital gains are not subject to Prsi.

Share dividends, rental and deposit interest are subject to Prsi.
If you have these types of investment income, of 5k + you get 52 class S

Is deemed disposal income "unearned income" in that context, since you aren't technically making a gain. It is a prepay.

I don't know what would happen here.
Do you mean deemed disposal from an ARF or from ETFs or Investment unit funds ?

If the deemed disposal was subject to Prsi and over 5k presumably you would get 52 class S.




If you have multiple different sources of unearned income and ARF income, you could receive 52 class S from each source.

So if for example you have ARF + earned self employment + investment income, you could have 156 class S per year.
But only 52 of these are Reckonable for COAP.

 

[LarryScott]

Do you mean deemed disposal from an ARF or from ETFs or Investment unit funds ?

I meant deemed disposal of ETFs held with a broker.

Sounds like it doesn't matters, since only dividends/rental/deposit interest count. I guess if I went with a distributing ETF, then that might count, since they pay dividends. I tend to get dividends on share I got as options a while ago, so they might push me over the limit.

You can only get a maximum of 52 reckonable (for contributory pension purposes) PRSI contributions or credits in any one year.

Yeah, they list them in the PRSI record, even though 52 is the max.

 

[elcato]

Be careful here because if you also have class M from an occupational pension or annuity, these will also convert your unearned income back to class K.

Wow. So annuity class M are pretty useless if you have any other income.

 

[S class]

Wow. So annuity class M are pretty useless if you have any other income.

Yes class M is basically the same as class A regarding converting investment and rental income from class S back to useless class K.

If you have an ARF this doesn't happen.
Or if you have any earned self employment this also doesn't happen.

Any small job could be submitted as earned self employment on form 11. This could be as small as mowing a friend's lawn. Get them to pay you cash and then submit the payment as earned self employment.

This solves two problems.

Firstly, you are avoiding operating in the black economy as you are declaring your earnings.

Secondly, you now have a source of earned self employment, and a person with class A or class M income and unearned self employment income, alongside earned self employment income, qualifies for class S on all their self employment income.


When you already have unearned income over 5k you have paid either the minimum €650 or 4.2% Prsi on this income

So if you earned €50 euro mowing your friend's lawn, you are only liable to 4.2% (€2.10) Prsi on this earned self employment.
You then pay your income tax and USC on this self employment.

 

[Chatterbox]

Asking for a friend .
He is trying to sort state contributory pension .
Does anyone know of an expert in the whole system used to c

 

[Chatterbox]

To calculate contributions for state pension. He is using class A and carers credits .He has a small class d pension. If there is anyone in the Cork kerry who is an expert in the methods used to calculate same .
Also he seem to be calculated at 14.95 will this be calculated at 15 .