BY JOHN ELLIS, FINANCIAL ADVISOR
As the end of 2024 draws near, so too does the critical Revenue ‘Pay and File’ tax deadline. If you wish to reduce your tax liability for 2023, this is a great opportunity as pension contributions made before the deadline can significantly reduce your tax bill. But there are key rules and timelines you must follow to receive this relief.
If you wish to take advantage of this tax relief, the deadline is twofold. First, the standard deadline for making pension contributions and electing for tax relief to be backdated to 2023 is October 31, 2024. But if you use the Revenue Online Service (ROS), there is an extended deadline of Thursday, November 14, 2024. This extension applies if you file your tax returns online and are making pension contributions through Personal Pensions, Personal Retirement Savings Accounts (PRSAs), and Additional Voluntary Contributions (AVCs).
This extended deadline is also available to you if you are a Pay As You Earn (PAYE) customer, provided you make your contributions online and use the appropriate forms on Revenue’s site to claim the tax relief.
By contributing to your pension before the deadline and electing to have the contribution offset against your 2023 income, you can lower the amount of tax you owe. This is especially beneficial for those who have not yet maximised “their age-related contribution limits”.
Up to age 29: 15% of Net Relevant Earnings (NRE)
30–39: 20%
40–49: 25%
50–54: 30%
55–59: 35%
60 and over: 40%
These limits are calculated against your NRE, which is capped at €115,000. By understanding these age bands and earnings caps, you can optimise the amount of relief you receive, particularly as you get closer to retirement.
If you are a PAYE client, pension contributions made in time for this deadline can lead to immediate financial benefits. Unlike self-employed individuals, who may be facing a tax bill at this time of year, if you as a PAYE customers make a backdated pension contribution you could find you are entitled to a tax rebate. This is because your overall income tax liability for 2023 is recalculated to account for the new contribution, resulting in a refund of some of the tax you previously paid.
If you are self-employed and/or under the self-assessment tax system, this is a crucial period for managing your income tax bills. By making a pension contribution before the ‘Pay and File’ deadline and electing to backdate it to 2023, you can significantly reduce the tax you owe. This can be a vital step in lessening the overall financial burden as the contribution is offset against your prior year’s earnings.
While the benefits of making a pension contribution are substantial, there are several common pitfalls that can arise, particularly concerning eligibility for tax relief. For example, if your employment status changes between 2023 and 2024, this can impact your ability to claim tax relief on contributions made to an AVC or occupational pension scheme. Similarly, if you have multiple income streams, for example you are self-employed with secondary employment, you may face limits due to dual-income rules.
Do not wait until it is too late. Speak with your financial advisor, assess your contribution options, and make your payment before the end of October, or by the extended November deadline if filing through ROS.
This is a once-a-year opportunity to reduce your taxes while investing in your future retirement. Take advantage of the available tax relief and ensure that your pension plan is working to the max for both your present and future financial health.
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