One levy too far?

Some business queries answered

Q: Q I worked in the HSE and retired in 2008 on full superannuation pension after 40 years' service. I went back to work part-time at the end of 2008 to the same kind of work in the HSE. Since May 2009, I am being deducted a contribution towards the Pensions Levy. I pay all the other levies, but I cannot understand why I have to pay the Pension Levy. I am on full pension, and cannot benefit any further from any contributions. I have been on to the HSE but I am not getting any satisfactory answer. Do you have any clarification on this particular issue? Surely, it cannot be right to deduct this levy when I cannot benefit from it.

Ms S.W., Dublin

AAs always with a new law, nothing is as clear as it might be. The public service pension levy was introduced under the Financial Emergency Measures in the Public Interest Act, which was passed into law at the end of February.

I’m no lawyer and the language of legislation is generally legalese to its fingertips. However, the Act states in section 1 that it refers to anyone who is employed by a public sector body, and the same section later clarifies, unsurprisingly, that the Health Service Executive (HSE) is a public sector body.

The next section clarifies that the levy applies where a person is a member of a public service pension scheme, is entitled to a benefit under such a scheme or receives a payment in lieu of membership of such a scheme.

You will need to look at your contract of employment to see whether you are automatically a member of such a scheme, given your previously retired status and inability to accrue any further benefits. It may well be that membership is by default.

Section 8 might give you some comfort. It states that “The Minister [for Finance] is satisfied that there is a particular class or group of public servants who, by reason of exceptional circumstances . . . which, in the Minister’s opinion, are materially distinguished from other classes or groups of public servants” may exempt or modify the obligation to pay the levy.

This would seem to leave open the prospect of you, or of a staff or union representative on your behalf, appealing to the Minister for an exemption on the grounds of your particular circumstances – ie, that you cannot gain any benefit in pension terms from this employment, as you are already on the maximum available pension.

I couldn’t say how such an approach would be treated, but it seems that you have nothing to lose. After all, you are currently paying the levy anyway.

PAYE worker queries salary

Q I am a single guy paying tax through PAYE, and have had my salary reduced to €40k per annum in light of recent economic developments. My company is telling me that the net monthly salary is just under €2,500, and they are doing me a favour by rounding it up to €2,500. This figure seems lower than it should be by €100/€200 net. Would I be correct in saying this? I have no pension contributions coming out of my salary.

Mr K.W., e-mail

AIt is impossible to be precise in this without knowing the full scale of tax credits to which you are entitled. However, you can certainly work it out for yourself.

The first thing you do is take your annual salary and apply the appropriate income tax rate. In 2009, income tax is levied at 20 per cent on the first €36,400 of salary and at 41 per cent on the balance.

On your salary, your income tax liability at the standard rate band is €7,280, with a further €1,476 payable at the higher 41 per cent rate.

To this income tax bill of €8,756, you need to add the cost of the income levy imposed in the budget last October and increased in the emergency budget. Initially 1 per cent of gross salary, this was doubled to 2 per cent from the start of May.

Given that you are on PAYE, and for the purposes of explaining the figures on your pay slip, your monthly contribution from May will be at 2 per cent, or €66.67 per month.

You’re not finished yet. Your salary is also liable to both PRSI and the health levy. PRSI on salaries under the level of €52,000 is levied at 4 per cent. However, the first €127 per week (€6,604 per annum) is not taken into account for the purpose of calculating PRSI. That means PRSI will cost you €1,335.84 over the course of the year.

On your pay slip, it is likely that the PRSI figure will include the cost of the health levy. As with the income levy, PAYE earners paid only 2 per cent health levy for the first four months of the year. From May, this rose to 4 per cent – €133.33 a month.

Totting up these figures, the deductions before allowing for your tax credits comes to €12,091.84.

On the credits side, you are certainly entitled to a personal tax credit and a PAYE tax credit. These are each worth €1,830 per annum – a total of €3,660. You deduct the tax credits from the income tax bill, leaving you with a net income tax bill of €5,096. Including PRSI and the levies, your total deductions per annum are €8,431.84.

You might also be entitled to tax credits for trade union membership and for paying your waste charges, among other things.

Assuming you have no other tax credits due, you have an annual bill for income tax, PRSI and levies of €8,431.84 on your salary of €40,000. That leaves a net salary of €31,568.16 – an average of €2,630.68 per month.

However, given the change in levies midway through the tax year, your monthly pay slip should show a lower figure from May onwards to balance a slightly higher figure in the early part of the year. So, what exactly should you expect to see on the bottom line of your pay slip this month?

From May, on an annual salary of €40,000, your gross monthly pay would be €3,333.33. Your monthly income tax bill would be €729.67, your income levy is €66.67 a month, with PRSI of €111.32 and a monthly health levy charge of €133.33. That’s a total of €1,040.99.

On a monthly basis, the tax credits we took into account above amount to €305, giving net monthly deductions on your pay of €735.99 and take-home pay of €2,597.34.

As you say, that appears to be in excess of what your company is paying but, as I say, there may be other factors of which I am unaware. I would suggest you approach the wages department of your employer and ask them to explain in very simple terms how they arrive at the figure they suggest you are due.

To be fair, modern payroll software is very reliable, and I would be surprised if your employer was underpaying you on the PAYE system.

It is almost certain that there is another element of which you are not aware.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. All suitable queries will be answered through the columns of the newspaper.