Taxation of benefits from employment
Most benefits from employment that are provided in addition to your salary are subject to income tax. The following is a summary of the main benefits that an employee may get and the rules the Revenue Commissioners apply. (The Revenue Commissioners are responsible for the collection of taxes on behalf of the Government).
Generally, there are two types of benefits that an employee may get in addition to a salary:
- Benefits-in-kind. These are benefits that an employee receives that cannot be converted into cash but have a cash value. Examples include provision of a company car, loans given at a special rate or provision of accommodation.
- Benefits (other than benefits-in-kind). Examples include vouchers, holidays, payment of an employee's bills and prizes.
Budget 2020: The 0% benefit-in-kind rate for electric vehicles with a market value of less than €50,000, is being extended to Dec 2022.
All employees who earn more than €1,905 per year pay tax on the value of any benefits and benefits-in-kind.
Taxation of benefits (other than benefits-in-kind), is made literally on the value of the benefit. For example, an employer provides you with a holiday voucher worth €2,000. This is treated as €2,000 income for tax purposes and is taxed accordingly.
The rules applying to benefits-in-kind vary. Generally, the value of the benefit-in-kind is the cost to the employer of providing the benefit less any contribution by the employee. Special rules apply to the following benefits-in-kind:
- A car
- Other motor vehicles
- Provision of living accommodation.
An employee can reduce the amount of benefit-in-kind assessed on a car if they incur a certain amount of mileage for business purposes. The benefit-in-kind can be further reduced if an employee contributes to insurance costs, motor tax and petrol.
Benefits that are exempt from tax or can be received tax efficiently
There are some benefits that an employee can receive that are not subject to tax or can be received tax efficiently. These include:
- Provision of bus/train passes for one month or more
- Bicycle and safety equipment under the Cycle to Work Scheme
- Certain share and approved profit sharing schemes
- Canteen facilities
- Reimbursement of expenses necessarily incurred in the course of employment
- Some accommodation provision
- Lump sum and certain redundancy payments
- Working clothes
- Non-cash personal gifts not related to employment
- Employer's contribution to statutory or revenue approved pension schemes.
- Mobile telephones, computer equipment and home high-speed internet connections where those benefits are provided for business use. (Private use is incidental.)
- Private use of company van which is essentially for the purposes of employee's work and where there is an employer requirement to bring the van home and where other private use is prohibited and the employee spends most of their working time away from the workplace to which they are attached.
This is not an exhaustive list and conditions and/or restrictions often apply to exemptions and should therefore be checked with the Revenue Commissioners.
Collection of tax from employment benefits
The tax, PRSI and Universal Social Charge to be collected from all benefits-in-kind are deducted by your employer at source.
Preferential home loans
A ‘preferential loan’ means a loan, made by your employer to you and/or your spouse or civil partner, on which no interest is payable, or interest is payable at a rate lower than the ‘specified rate’. An employee in receipt of a preferential loan is charged income tax on the difference between the interest actually paid and the amount which would have been payable at the 'specified' rates of interest for the loans. The specified rates are as follows:
The current rates are:
- Qualifying loan for home (principal residence): 4%
- Other loans: 13.5%
You can get more information on the tax treatment of preferential loans from employers from Revenue.
Small benefit relief
You can receive a small non-cash benefit from your employer without paying PAYE, USC and PRSI. Such a benefit must have a value of €500 or under (€250 up to 21 October 2015). This treatment does not apply to cash payments, which are taxable in full. You can only avail of this relief once in a tax year. If the benefit is more than €500 in value (€250 up to 21 October 2015) the full value of the benefit is subject to PAYE, USC and PRSI.
Where to apply