Employer contributions to PRSAs - Income Tax, PRSI and USC
The purpose of this eBrief is to clarify for employers and payroll practitioners how employer contributions to an employee’s Personal Retirement Savings Account (PRSA) are to be treated for Income Tax, PRSI and USC purposes.
An employer contribution to an employee’s PRSA is treated as a taxable BIK for the employee. However, for the purposes of obtaining tax relief on pension contributions, the employee rather than the employer is deemed to have made such a contribution to the pension fund (section 787E(2) Taxes Consolidation Act 1997). The effect of this provision is that the tax relief on the contribution negates the taxable BIK on the benefit provided. This treatment only applies where the employer contribution does not exceed certain limits based on the age of the employee.
Section 985A of the Taxes Consolidation Act 1997 provides that an employer is not obliged to operate PAYE on contributions to a PRSA for an employee.
It should be noted that while employer contributions to a PRSA are a taxable benefit in the employee’s hands, these same contributions qualify for full tax relief subject to certain age-related limits. They are not subject to PAYE. It is the employee’s responsibility to contact Revenue where such contributions exceed the tax allowable limits to ensure the correct tax is paid on any excess contributions.
Employers should maintain appropriate records of their contributions to an employee’s PRSA. Employers may choose to put the contributions through payroll for the purposes of record-keeping. However, if this is done it should be cost-neutral (for Income Tax and PRSI ) to the employee and the employer.
The employer should return these contributions on form P11D when requested by Revenue to do so.
This eBrief addresses the treatment of employer contributions to an employee’s PRSA. Since 1 January 2011, employee contributions to a PRSA are chargeable to PRSI – fully chargeable in the case of the employee and 50% chargeable in the case of the employer.
In general, PRSI is only charged on emoluments that are taxed under the PAYE system. While employer PRSA contributions are a taxable BIK, they are not taxed under PAYE and are thus not chargeable to PRSI (both employer and employee share).
Where employer PRSA contributions have been put through payroll and PRSI has been deducted, employers should make the necessary adjustment to payroll.
Universal Social Charge (USC)
Since 1 January 2011, USC is chargeable on the taxable BIK of an employer contribution to an employee’s PRSA.