Q&A Dominic Coyle
How will the State get the extra 4% on savings?
How will the Government get the extra 4 per cent on savings from non-PAYE employees? Will banks deduct it? Or will it be deducted from personal pensions?
Ms M.M., email
PRSI was not mentioned in the Budget last week but, as you note, that does not mean that it is not going to be a significant issue for people in the year ahead. The Government announced plans back in Budget 2013 (in December, 2012) to extend PRSI to “unearned income”. However, the measure was deferred and only comes into force on January 1st, 2014, which means that it is only now that people are waking up to the practicalities of it.
I think many people thought the Minister might clarify the details in the Budget but that was never going to happen: the whole point of announcing the measure last year was to avoid any negative headlines on the issue this time around. So how is it going to work?
The first thing is to get a fix on unearned income. This includes rental income, investment income, dividends and bank interest – ie income outside your basic employment.
The Department of Social Protection oversees the collection of PRSI and it assures me there is no question of banks or credit unions being required to collect PRSI in the same way they now deduct Deposit Interest Retention Tax (Dirt). In part, that is because the institution has no way of knowing who is liable to pay PRSI and who is not.
Secondly, collection of PRSI will not be by way of deduction from a pension or other salary or welfare payments. While this is an issue for local property tax, that is not to say that all future tax collection will replicate the LPT model. In relation to pensions, it should also be noted that no-one over the age of 66 is liable to PRSI unless they remain in employment and even then only under Class J. Thus, if you are in receipt of a State pension, you should not have any obligation to pay PRSI on your savings.
Essentially, the Department advises, people who are regarded as “chargeable persons” for income tax purposes under the Taxes Consolidation Act 1997 will be liable. And in plain language? For the purposes of “unearned income”, a chargeable person within the PAYE system is someone who has more than €3,174 in unearned income. Below that level, amounts are considered “insignificant” and the Department tells me such people will not be liable to PRSI.
Strictly speaking, the rule excludes someone “who has an element of other insignificant income that is fully taxed through the Revenue Commissioners PAYE system” from liability. The reference to “fully taxed through the Revenue Commissioners’ PAYE system” reflects the point that people are strictly speaking supposed to make a tax return if they have income outside PAYE, including bank interest. In reality, very few do so and it makes no difference to their tax bill anyway. The bottom line is that, for most people – especially at current rates of interest – PRSI on bank savings is not likely to be an issue.