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Marginal tax rate

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  • 14-09-2021 5:33pm
    #1
    grape3012
    Registered Users Posts: 17 ✭


    Hi there for the purposes of tax relief on avcs how is the marginal rate calculated. Most sites say if you pay 40% you will receive 40% relief on the eligible portion of your contribution. I want to make a contribution for tax year 2020, note I changed jobs in 2020.

    Taxable income for the full year taking into account both jobs is over the 35,300 threshold but the taxable income for my current job on its own is just under the threshold.

    In 2020 I paid 40% tax for a good few months on a portion of my salary so I thought I would be eligible for 40% relief but I don't think I am now after speaking to an adviser but they didn't explain why clearly.

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    #2
    Saudades
    Registered Users Posts: 378 ✭✭Saudades


    I'm curious about what the advisor said exactly?

    I can't see how switching jobs would make any difference. The figure that matters is the total amount of taxable income for the year.



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    #3
    ari101
    Registered Users Posts: 2,835 ✭✭✭ari101


    OP:

    You might find you are only just above the 35k combined and if you are already making a pension contribution monthly through payroll this could be bringing you below cut off already (e.g. earning 37k combined, paying 10% EE pension on gross of 32k means you are already reducing income taxable at 40% to nil as 37k-3.2k = 33.8k which is less than 35.3k (assuming on std cut off).

    If you are young age can limit the % you contribute a lot too, so could be maxing it out with a 15% regular contribution through payroll aged under 30.

    Or, although you can combine incomes for calculation of total limit (max 115k), maybe you could be limited to % based on main salary, if AVC is going into an occupational pension specifically linked to that job. There might be room to make a contribution to a separate scheme in relation to the other?

    Details of limits by age:

    https://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx

    That link provides links to the more detailed pension manuals also which may be of interest.



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    #4
    grape3012
    Registered Users Posts: 17 ✭grape3012


    https://www.boards.ie/discussion/comment/117905148#Comment_117905148

    Yeah I didn't realise prior to speaking to them that it is only your active employment counts for the purposes of calculating your Age-related percentage limit for tax relief. So I would have had to make a contribution prior to leaving my other job too in order for it to count (this info is really is not well publicised anywhere though). I do think the tax rate is based on gross overall income though I have sought clarification from revenue before making the contribution as it is a huge difference.



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