Self-assessment and PAYE taxpayers

Q&A: Since 2014, PAYE taxpayers’ ‘unearned income’ has come under revised rules

Since 2014, people who pay PAYE have had to  pay PRSI on income – such as rental income, dividends, bank interest, etc – that previously had been outside the PAYE net.

Since 2014, people who pay PAYE have had to pay PRSI on income – such as rental income, dividends, bank interest, etc – that previously had been outside the PAYE net.

 

I have been a PAYE employee since 1976. In 2004, I purchased an apartment, in an attempt to fund a pension as I had no pension from my employer. I made tax returns every year but last year I was sent a form by Revenue which seemed to bear no resemblance to my circumstances. I rang Revenue to query it but a lady there told me that, as I own an apartment, Revenue had classified me as self-employed since 2013.

I pointed out that I had rental income of circa €11,000 per annum and PAYE income of €48,000, so it seemed to a bit incongruous. In addition, Revenue had never advised me of this change.

Is this classification likely to have an impact on social welfare benefits – ie State pension, dental, etc – as I understand that self-employed people are treated differently in this area? Also, should I be asking Revenue to justify this change?

Ms AB, Dublin

This all relates to the somewhat incongruous concept of “unearned income” and, as you have been told, it all relates back to new rules introduced by the outgoing Minister for Finance Michael Noonan back in 2014.

Though it will be of little comfort to you, the change was made to bring the position of people in the PAYE sector who were in receipt of income not taxed under PAYE into line with those who were self-employed.

Self-employed, or more accurately, self-assessed people were forced to pay PRSI on all income at 4 per cent. Back then, people who paid PAYE did not pay PRSI on income – such as rental income, dividends, bank interest, etc – that was outside the PAYE net.

The 2014 rules changed this for anyone whose “unearned income” was more than €3,174 per annum – a figure that has since risen to €5,000.

Clearly, with €11,000 in rent coming in to you each year, you fall under the new rules regardless of how much more you earn under PAYE. And because you do, you have to file a return under self-assessment – form 11 – rather than the standard form 12 and pay additional tax in PRSI – at least until you reach pensionable age, currently 66, and are no longer liable for PRSI.

So in answer to your final question, you do not have any grounds for asking Revenue to justify the change in its approach.

But what does in mean in practice? Most importantly, as per your query, would the change have any impact on your entitlement to benefits such as the State pension?

The good news for you is that it does not. Any benefits accruing under the PRSI you pay on your PAYE income remain in place. Nothing changes there. You do not lose any existing benefits that apply to your PAYE income.

However, on the flip side, you will not gain any new benefits in relation to PRSI paid on your rental income. This new element of your PRSI bill is paid under class K, which provides no benefits. So you get nothing more in benefits for the additional tax you are paying and the additional hassle you have in completing form 11.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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