Insights

Tax exempt bonus

As Christmas approaches, you may be looking for a way to show your employees your appreciation of their hard work during the year.

 

Of course, cash bonuses would be welcome by most, but by the time taxes including PAYE, USC, and PRSI are deducted, the net sum will be significantly reduced.

 

However, there’s another way that employers can reward their workers without incurring taxes. Initially introduced in the 2004 Budget, employers can give a bonus or gift using the Small Benefit Exemption Scheme.

 

The exemption in respect of non-cash gifts or rewards given by employers to their employees was also doubled from €250 to €500 in recent years meaning you can award your employees a small benefit of up to €500 in value tax-free each year.

 

There are a few rules to the scheme however:

  • The benefit must not be in cash. Gift cards and vouchers are popular ways to avail of the scheme.
  • The amount of the benefit must not exceed €500. If it is more than €500, the full amount is subject to tax.
  • No more than one benefit per employee per year. Subsequent benefits will be subject to tax even if the total amount is less than €500.
  • The amount can’t be a salary sacrifice. This means you can’t offset the amount against the employee’s pay. The gift or voucher must be paid for outside of payroll.
  • You don’t have to give the full benefit of €500 available. Small business owners may be unable to afford to give each employee €500 and prefer to gift a lesser amount. That’s fine – any amount up to a maximum of €500 is allowable.

By using this exemption, you can make potential savings of up to €653 per employee compared to putting it through payroll.

 

WRITTEN BY:

WRITTEN BY: