A few weeks ago we spoke about how fundamentals errors in the implementation of the Health Levy could result in a €1,000 gross pay rise could result in less money in your pocket after tax. We hope the government clears up the impact of this in the forthcoming budget. There are ways of decreasing the impact of the health levy on your pocket in these marginal cases if the government allow this to continue post budget.
In the following descriptions, I will refer to being paid on a weekly basis, but the same stands for those paid on a monthly basis.
Whereas Income Tax is charged on a Year to date basis (effectively your tax is calculated as the difference between last weeks and this weeks total tax calculation), Health Levy is calculated each week for the pay that week and with no reference to what has happened in previous weeks.
It is completely black and white in this regard. So a person earning €501 a week will be charged Health Levy at 4% (€20), a person on €499 a week will have no health levy bill and thus take home more dough off a smaller pay.
The fact that previous history is not taken into account can be used to your advantage. Say you are on €550 a week. You will be charged 4% every week, which is €22 a week, €88 every 4 weeks and €1,144 a year. Why not have a chat with your boss and agree a new pay deal. under this new deal, you get paid €500 a week under this deal and then every 4th week you get the €50′s back, so get paid €700. With this deal, for 3 weeks you pay no health levy and in the 4th week you pay 4% on the €700 which is €28 in total for the 4 weeks and only €364 a year. This is a saving of €780.
You could go further with this deal of course and arrange that you receive a standard €500 a week and an annual bonus in just one week for the remainder - now that would definately depend on your having a good relationship with you employer.
In writing this a large part of me thinks it wrong to propose means to reduce the amount of revenue available to our government at a time it’s really needed, but there is a serious injustice being done to people when a pay rise can leave you worse off. Hopefully we’ll see the government tackle this in the fortcoming December 9th Budget and consign this suggestion to irrelevance.
Great Post, Nice to see someone who understands the system so well. I’ve seen a lot of ‘experts’ get confused with so many changes in the income tax system recently.
I guess theres always some sort of an ethical dimension to reducing your tax bill in my opinion as long as its legal do it.
Anyone conscious of taking refunds from a badly stuck government could always donate some of the refund to charity which will undoubtedly put the funds to better use than Mercedes for Ministers!
Cheers Ralph, appreciated.
Up until recently, nobody cared about anomolies in the tax system like this, as you got extra tax credits each year, increased child benefit and all the other freebees. Now I think this can grow into a real live issue.
And in the ethical debate, the person who gets a pay increase but ends up with less money in their pocket wins the argument hands down!
It seems like we all have to be double employed. First time when we do our everyday work and second one when we work with our taxes. Why it can’t be simpler.
Hi I know this is an old post and the Health Levy is going in 2011 anyway but I have just done my 2010 self assessed return because I’m self employed. But because I’m married I had to do a joint assessment. My wife works for the HSE and I had to put in all of her details. As a result she has had the health levy at 4% applied to in income from interest on her savings (as well as DIRT of course).
This seems really unfair because i’m sure most people on PAYE would not have this happen because the Govt never asks them about their savings-that’s why DIRT is there. It’s only because I had to fill in the return. Anything to be done?
Thanks
Mike