The government has extended the small benefits exemption in the budget, doubling to €1,000 the amount employers can give workers in tax-free vouchers per year.
Gift exemptions are a popular way for companies to incentivize and reward staff.
This week, a CIPD/IRN Compensation and Employment Practices Survey showed that 56% of employers currently offer vouchers to workers.
In his address to the Dáil, Finance Minister Paschal Donohoe said: “The small benefits exemption allows an employer to provide limited benefits or rewards in kind to its workers without having to pay tax on the income, PRSI and USC.
“I am increasing the annual cap under the exemption from €500 to €1,000 and will also allow two checks to be issued by an employer in a single year under this exemption.
“I propose that these changes apply to the current tax year, so that additional benefits can be paid this year if an employer wishes.
This is good news for employers who wish to reward their employees for their work by offering them a tax-free bonus.
It’s also good news for the employees who receive the checks, and it’s good news for the economy because the money, in the form of checks, will be spent in shops, restaurants and hotels.
CIPD Ireland Director Mary Connaughton said using the voucher will save 50% of the amount as it is tax free and does not have to go through payroll.
She urged employers to take advantage of the added benefit.
“It’s a great way to reward employees for their commitment, and especially right now, it can counter some of the inflationary pressures that employees are under,” she said.
Ms Connaughton said the government’s commitment to implement the measure this year means employers have the opportunity to show extra support for struggling workers as we face a potentially difficult winter.
Exemption from small advantages is subject to general conditions.
It must not be in the form of cash, so it must be a voucher or similar, and if the value of the benefit exceeds €1,000, the full value is subject to tax.
Marian Ryan, Consumer Tax Manager at Taxback.com, said that previously employees could only receive one small benefit of €500 or less per year tax-free and any additional small benefits or vouchers would be in taxable fact.
It could only be applied once a year, which meant that employers had to know when and how it was issued to employees.
“So say for example your employer gave you a €100 hotel voucher in March of a given year, that would be tax free,” Ms Ryan said.
“However, if in July of the same year your employer offered you a One4All voucher of €200, this €200 would be taxable.”
This has changed slightly during the pandemic, with earnings allowing two gifts per year to qualify for the exemption once the combined value of the two gifts has not exceeded the €500 threshold.
If more than two incentives are issued, only the first two may qualify for the perks waiver.
This concession applied for the 2020 and 2021 tax years and continues this year.
Ms Ryan said Minister Donohoe’s extension of the exemption allowing payments of up to €1,000 through two vouchers is “extremely beneficial to employers and employees, as employees could potentially receive full value €1,000 tax-free in 2022”.
“In other words, if an employee were to receive a taxable cash bonus in full, the cash bonus would need to be in the range of €1,950 before tax to equate to the same cash value for the employee once taxes deducted.
The measure has also been welcomed by merchants who will see vouchers spent in their businesses.
It comes at a good time for retail, with sales down 5.6% on a year ago according to the latest figures from the Central Statistics Office.
Arnold Dillon, director of Retail Ireland, said the increased exemption “is a really useful step which allows businesses to better reward their staff, but also funnels a lot of that money directly into the national economy. “.
“Money received in vouchers is usually spent at local retailers, so the measure also supports local jobs and businesses in the process.”
Companies have been looking for ways to support their staff during the cost of living crisis, and this is partly helping employers do that.
It will also help companies retain their staff.
“Across the economy, many companies continue to struggle to attract and retain talent, so we would be confident many companies will use the expanded program over the coming months,” Mr. Dillon said.
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