Taxation of pensions
In general, all income arising from pensions in Ireland is subject to taxation. This document sets out the way in which pensions are taxed. Occupational pensions are taxable. Many pensioners do not actually have to pay tax, because their income is too low.
Occupational pensions are subject to tax under the PAYE system (the 'Pay-As-You-Earn' System) so the process is the same as that applied when you were being paid your salary. If you have both an occupational pension and a social welfare pension, you may have to pay tax on both. Read more about taxation of social welfare payments here.
Occupational pensions are not subject to social insurance contributions (PRSI) but if you are aged under 66, you may have to pay PRSI on other income. Occupational pensions are subject to the Universal Social Charge (USC).
Occupational pensions are taxed in the same way as salaries and wages. If you are getting an occupational pension from an Irish source, it is usually taxed under the PAYE system in exactly the same way as you were taxed while employed. If your pension comes from outside Ireland, you usually pay tax in a lump sum annually.
If you are living abroad and you receive your pension from Ireland, it may or may not be taxable under PAYE. If there is a Double Taxation Agreement, you may be exempted from Irish tax (but usually liable in the other country). If this is the case, the Revenue Commissioners may notify the payer of the pension (i.e., your former employer, the pension fund, etc.) that income tax is not to be deducted under PAYE. If the Revenue Commissioners do not notify the pension payer, then PAYE must be deducted in the usual way.
Income from the following sources is exempted and does not have to be included on a return of income:
- Wound and disability pensions and all gratuities granted in respect of wounds or disabilities under the Army Pensions Acts (any part of such pensions that is not attributable to disability is taxable)
- Military gratuities and demobilisation pay granted to army officers and various allowances under the Army Pensions Acts and a few other army pension-related acts
- Pensions and other allowances payable to War of Independence veterans and their families
- Certain foreign pensions that would not be taxable if the recipient lived in the country that granted them
If you have a social welfare and occupational pension
There is no mechanism for taxing social welfare pensions at source. Your other source of income determines how tax is levied. The most common situation is where a pensioner (State Pension (Contributory) or Widow's/Widower's/Surviving Civil Partner's (Contributory) Pension) has both an occupational pension and a social welfare pension. If the occupational pension is paid from within Ireland, it is taxed by PAYE in the same way as a wage or salary. This means that you get your tax credits in the normal way. In order to tax your social welfare pension your annual tax credits are reduced by the tax liability on your social welfare pension. For higher incomes, the standard rate cut off point will also be reduced. You then effectively pay tax on both the pensions, but it is collected from the occupational pension. The technical term for this is coding in of credits. The same arrangement applies if you have income from a job and a social welfare pension.
If your social welfare pension was not coded in, you would have to pay tax as a self employed person in a lump sum by 31 October each year.
If your other source of income is not taxed on the PAYE system, for example if you have an occupational pension from abroad or you have investment income, then you are classed as a self-employed person and your tax is payable annually by 31 October each year.
If you have a social security pension from abroad, it is also generally taxable in Ireland. The tax is payable annually unless you have a source of income that is subject to PAYE.
Income coming from abroad
Income that comes from abroad is generally taxable in Ireland if you are resident in Ireland.
Income from outside Ireland is almost never taxable by PAYE. Tax is always paid in a lump sum annually. Technically, it is described as subject to Schedule D. (The technical term for PAYE is Schedule E.)
Certain foreign pensions that would be exempt from tax if you were resident in the country paying the pension are also exempt from tax in Ireland.
Double Taxation Agreements
Double Taxation Agreements generally make a distinction between pensions payable by governments to former employees and pensions payable by private employers. There are some variations between the agreements and not all agreements make this distinction and they vary in other ways so you would need to check how exactly you are affected.
Most of them provide that pensions for non-governmental employees are taxed in the country of residence. So, if you are living in Ireland and getting an occupational pension from another country, you should generally receive it gross and then pay Irish tax on it.
The opposite is the case for pensions for former Government employees - generally they are taxable only in the country where they are paid. So, if you are a former employee of the US government now living in Ireland, you pay tax on your occupational pension in the USA only. In some cases, this applies to pensions from local authorities or other political sub-divisions - again, the particular agreement needs to be checked.
Pay-related Social Insurance (PRSI)
If you are over 66, you are not liable to pay PRSI contributions at all. Find out more about social insurance in Ireland.
If you are under 66 and are employed or self-employed, you pay PRSI on your income from that employment or self-employment. You do not pay it on your occupational or social welfare pension.
Universal Social Charge (USC)
The Universal Social Charge (USC) replaced the health contribution and the income levy from 1 January 2011. All social welfare payments including pensions are exempt from the USC. However, occupational pensions are subject to the USC. The rate you pay varies depending on your age and on whether you hold a full medical card. See our document on the Universal Social Charge for more information.