Irish Taxes for the Expat (Part 2)

Today I’ll talk about benefits in kind, and how they are taxed and some of the programs in place in Ireland that you can take advantage of.

What are Benefits in Kind?

Benefits in kind are all benefits that an employer might give you that aren’t necessarily part of your regular income. They can range from medical insurance to cars and loans.

The Revenue website states that employees with an income above 1.905 euros, including benefits, will need to be taxed, but employers can give small benefits up to 500 euros per year, as long as they are not cash, free of tax.

We’ll take a look to some of the more common benefits employers might provide.

Medical Insurance

Medical Insurance is a common benefit in kind offered by many employers in Ireland. The employer will pay upfront the premium to the insurance company (VHI, Laya and Irish Life are the most common) and the employee and dependents will be insured for the year. The employee rarely needs to do anything in order to keep the cover going, as long as he/she is employed continuously. Of course, it doesn’t dispense talking with your local human resources department for more information.

In terms of taxes there are two considerations to know:

  • The employee will be taxed on the value of the medical insurance for himself and dependents. As an example imagine the cover for one adult would be 1.500 euros and for one child 800 euros. A family of three with two adults and one child would total 3.800 euros for the year. This value will be added up to the total income of the employee and it will be taxed at the normal marginal tax rate plus USC and PRSI. In the above example if the employee was at the top rate of tax, above 70.000 euros, would pay 52% on the insurance premium, which comes at 1.976 euros. This amount would be deducted from the employee’s salary automatically every pay cycle.
  • The employee is eligible for a tax credit on the medical insurance. Up until 2014, the full premium was eligible for a tax credit at the standard rate (20%). From 2014 onward there is a limit of 1.000 euros per adult and 500 euros per child in terms of premium that can be considered for the tax credit, which is still at the standard tax rate of 20%. Going back to the above example our employee in 2013 would be able to get a tax credit of 760 euros (3.800 x 0.2). From 2014 on the tax credit is reduced to 500 euros [(1.000 + 1.000 + 500) x 0.2]. In order to claim the tax credit, a Form 12 for the respective year needs to be filled and sent to the local Revenue office or it can be done online via myAccount, the online Revenue service. Be aware that the forms might change from year to year and you’ll need to get the correct Form 12. If using myAccount this can be done by editing the tax credits for the year in question. As with most thing Revenue related you can amend tax credits up to 4 years in the past.

It might be useful, since we’re on the topic of medical insurance, to know that the Form 12 is also used to claim any medical expenses that haven’t been covered by medical insurance. These will grant a tax credit at the standard rate of 20%. Please consult the list of medical expenses that can be considered here.

It’s also useful to note that if buying medical insurance directly, typically, the insurer will discount from the premium to pay the amount of tax credit due, but if the insurer doesn’t do it you should claim it with the Revenue.

Bike to Work Scheme

Another popular benefit employers might give employees is the Bike to Work Scheme. This scheme allows for an employee to buy a bicycle and equipment up to 1.000 euros and the amount in question will be deducted by the employer from the employee’s income pre-tax, which means that the employee tax bill will be reduced at their marginal tax rate plus USC and PRSI.

Let’s look at an example. Joe makes 40.000 euros per year from his job. He buys a bicycle and some equipment which cost him 800 euros. His employer takes the burden of paying for it to the shop and in turn, it will deduct the 800 euros from Joe’s salary, which means Joe will only make 39.200 euros now. This reduces his tax bill for the year (less income means less tax) by 392 euros (49% which is the marginal tax rate for Joe’s salary) and his income by 408 euros (which is the remaining balance, used to actually pay for the bike and equipment in a way). What this means for Joe is that he saved almost half of the cost of the bicycle and equipment in this way.

In order to benefit from this, the employee must buy the bike and equipment from a registered store in the scheme and employer must also be registered to provide this benefit. For more information visit www.biketowork.ie.

Tax Saver Tickets

This benefit is identical to the Bike to Work scheme, only it applies to other public means of transport that exist in Ireland. Covered services include Irish Rail (including Dublin services like DART and Commuter trains), Bus Eireann (long distance buses), Dublin Bus and Luas (Dublin light rail).

For more information visit www.taxsaver.ie.

Conclusion

We’ve looked at what I believe are the three most popular benefits that Irish employees have at their disposal in order to reduce their tax bill. I don’t know of many other schemes like these that have a big impact on the personal finances, but let me know if there are any in the comments.

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