Information on the Extension of PRSI Liability to Unearned Income


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The Extension of PRSI Liability to the Unearned Income of All Employed Contributors and to Occupational Pensioners under Pensionable Age.

In his Budget 2013 speech the Minister for Finance indicated that:-

"Where modified PRSI rate payers have income from a trade or profession, such income and any unearned income they have will be made subject to PRSI with effect from the 1st of January 2013.

Unearned income for everyone else will become subject to PRSI in 2014. This means that PRSI will be payable on income generated from wealth such as rental income, investment income, dividends and interest on deposits and savings."

Summary of changes to date:

Prior to 2013 modified rate contributors i.e. civil and public servants recruited prior to April 1995, were exempt from PRSI on income other than earnings. From 2013 that income became liable to a 4% PRSI charge, once that income included either:-

  1. earned self-employed income, or
  2. self-employed income which comes within PAYE.

The PRSI charge on all earned self-employed income and on any unearned income these people also have, applies from 1-1-2013 and is payable along with their tax through the self-assessed tax system.

The PRSI charge on all self-employed income which comes within PAYE, is payable from 28 June 2013 and is deducted at source.

The new PRSI charge will not give rise to any social insurance entitlements.

Social insurance entitlements based on PRSI paid on the person's main civil or public service employment will not be affected.

From 1/1/2014

PRSI charged on different forms of income

Generally persons between 16 years and under pensionable age are liable to PRSI on all of their different forms of income.

All workers pay PRSI on their earnings from employment. If an employee has income from self-employment e.g. taxi driver, he also pays PRSI as a self-employed contributor on the profits from the taxi driving plus any other unearned income he might have e.g. rental income.

However if an employee or a person in receipt of an occupational pension has certain forms of unearned income only, the unearned income is exempt from PRSI. In Budget 2013 it was announced that from 1st January 2014, the exemption from PRSI applying to employed contributors and occupational pensioners aged under 66 years whose only additional income is unearned income, will be abolished. This means that unearned income such as rental income, investment income, dividends and interest on deposits and savings will be liable to PRSI. Interest on deposits and savings is currently liable to DIRT (increased to 41% from 2014 as announced by the Minister for Finance in his Budget 2014 speech). This income will now also become liable to PRSI at 4% for the above persons provided the person is a chargeable person in accordance with the Revenue definition as detailed below.

This new PRSI charge will not give rise to any social insurance benefits.

Revenue Definition of a chargeable person:

Persons who are "chargeable persons2 for income tax purposes under the Taxes Consolidation Act 1997 will be liable. A chargeable person does not include a PAYE taxpayer (i) who does not have other income or (ii) who has an element of other insignificant income that is fully taxed through the Revenue Commissioners PAYE system (Revenue regard amounts not exceeding €3,174 as insignificant. Individuals with income exceeding €3,174 must pay and file under Revenue's self-assessing system).

Employment Income

PRSI is paid by employees and their employers on their salary from employment which is insurable for PRSI purposes. Under PRSI rules this income is referred to as "reckonable earnings".

Civil and public sector workers recruited before April 1995 pay PRSI at modified rates of contributions and are classified for PRSI purposes under PRSI Classes B, C or D. These are referred to as "modified rate employees".

Non-employment Income

Employees may have additional income, apart from their employment income. For PRSI purposes this additional income falls into one of the following categories.

  • "reckonable income" - this refers to income which is outside PAYE and on which tax is collected through the self-assessed system of tax collection. This can be either earned from a profession or trade or unearned from, for example, rental income.
  • "reckonable emoluments" - this is income which is not derived from insurable employment and which is taxed under the PAYE system. It includes:
    • Income paid to certain working directors who own 50% or more of the ordinary share capital of a company either directly or indirectly,
    • Certain forms of non-employment income on which tax is collected at source under the PAYE system (i.e. Approved Retirement Funds).

Impact of Change

Examples of how these changes affect persons with different forms of income are provided at the end of this notice.

Class K 4% PRSI charge

The PRSI paid will be classified for the purpose of recording the contribution under PRSI Class K. Class K contributions do not give entitlement to any social insurance benefits based on the payment of the new PRSI charge. The PRSI charge will apply to all of the income. (Note: For certain other Class K contributors PRSI is not paid if their weekly income is less than €100.)

FURTHER INFORMATION

Further information may be obtained relating to the payment of PRSI on the non-employment income of employees from:

Information Services
Department of Employment Affairs and Social Protection
Social Welfare Services
College Road
Sligo

LoCall: 1890 66 22 44 (from the Republic of Ireland only)
Telephone: +353 71 9193313 (from Northern Ireland or overseas)

EXAMPLES

Example 1
A person in receipt of an occupational pension with additional unearned income.

Jane has an occupational pension. She is under pensionable age. She also has rental income.
Occupational Pension Liable to PRSI at Class M
Rental Income Liable to PRSI at Class K from 1/1/2014 if she is a chargeable person in accordance with the Revenue definition detailed above.

 

Example 2
An employee with additional unearned income only.

Kevin is an employee and is paying PRSI at Class A. He is also in receipt of rental income.
Insurable PAYE income Liable to PRSI at Class A
Rental Income Liable to PRSI at Class K from 1/1/2014 if she is a chargeable person in accordance with the Revenue definition detailed above

 

Example 3
A person whose only source of income is unearned.

Patricia has income from rental of property and she also has share dividends, she has no earned income.
Reckonable Income Liable to PRSI at Class S
As Patricia's only source of income is unearned income she is paying PRSI at Class S on her income and she will continue to be liable to pay PRSI at Class S as before.

 

Example 4
Modified rate contributor with unearned income

Claire is a nurse in the army and also receives rent from a property
Salary from the army: Liable to PRSI at Class C
Rental income: Liable to PRSI at Class K from 1/1/2014 if she is a chargeable person in accordance with the Revenue definition detailed above
Last modified:17/10/2013
 

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