Receiving a bonus is a great way to reward yourself for hard work, but did you know your bonus could be heavily taxed? In Ireland, bonuses are subject to various taxes like income tax, PRSI, and USC, which can reduce your take-home amount.
In this blog post, we will explain everything you need to know about how bonuses are taxed in Ireland, including:
- How is bonus tax calculated in Ireland?
- What employers need to consider before giving bonuses
- What are the tax implications for bonus payments
- 5 simple strategies to reduce your tax burden
- How Irish Tax Rebates can maximise your bonus payment
- FAQs
How is bonus tax calculated in Ireland?
In Ireland, bonuses are taxed in the same way as your regular salary, meaning they’re subject to Income Tax, PAYE, USC, and PRSI. When you receive a bonus, your employer adds it to your total earnings for that pay period, and all these taxes are applied to the combined amount. This can sometimes push you into a higher tax bracket for that period, so your bonus might be taxed at a higher rate than your regular income.
What employers need to consider before giving bonuses
Employers should consider three important factors before giving bonuses to make sure they work for both the company and the employees.
1. Understand the tax impact of bonuses: Since they’re fully taxable, bonuses can significantly reduce an employee’s take-home amount. By understanding how much of the bonus will be taxed, employers can give employees a more accurate idea of what to expect, preventing any surprises when the pay slip arrives.
2. Define eligibility rules: It’s important for employers to clearly define who qualifies for a bonus and under what conditions. Whether the bonus is for meeting performance goals or recognising specific achievements, defining who qualifies ensures that the process is fair and transparent for everyone.
3. Timing and frequency: Decide when and how often to give bonuses. For example, a Christmas bonus can reward employees for meeting annual goals, while a mid-year bonus can boost motivation and show appreciation for their hard work. Careful planning around when and how often bonuses are given can also help reduce the impact on employees’ tax liability.
What are the tax implications for bonus payments
Bonus payments are subject to various taxes in Ireland. Whether a bonus is paid in cash or non-cash form, different tax rules apply. Below, we explain how cash and non-cash bonuses are taxed so you can understand the differences and what to expect.
How cash bonuses are taxed
- Income tax: Cash bonuses are treated as part of your overall income for the year, meaning they’re subject to Income Tax at the same rates as your regular salary. The amount of tax you pay depends on your total income, including the bonus. For example, if you’re in the standard tax band of 20%, your €5,000 bonus would be taxed at 20%, meaning you’d pay €1,000 in tax.
- Universal social charge: On top of Income Tax, your bonus is also subject to the Universal Social Charge (USC). The USC is based on how much you earn, with higher earnings taxed at higher rates.
- Pay related social insurance: PRSI is a percentage of your earnings, and bonuses are no exception. For example, if you’re earning €35,000, including your bonus, and are paying 4.1% PRSI, you’ll pay 4.1% of your total income, including the bonus. So, for a €5,000 bonus, this would result in a PRSI contribution of €205. Keep in mind that the PRSI rate will increase to 4.2% in 2025, so you’ll pay slightly more next year.
Here’s an example of how a €5,000 bonus would be taxed, including Income Tax, USC, and PRSI.
- Normal income: €35,000
- Bonus: €5,000
- Total income for the year: €40,000 (below the higher-rate threshold of €42,000 in 2024)
Tax on bonus:
- Income Tax: €5,000 @ 20% = €1,000
- USC: €5,000 @ 4% = €200
- PRSI: €5,000 @ 4.1% = €205
Net amount of bonus after tax:
€5,000 – €1,000 – €200 – €205 = €3,595
How non-cash bonuses are taxed
- Non-cash bonuses: Include gifts, vouchers, or other rewards that aren’t paid in cash. Even though these bonuses aren’t cash, they are still considered a form of income and are subject to tax. For example, while the value of a non-cash bonus is still taxable, it might be treated as a “Benefits-in-Kind” (BIK), which can affect how it is taxed.
- Small benefit exemption: In 2025, employers will be able to give employees non-cash gifts worth up to €1,500 per year. Also, employees can now receive 5 non-cash benefits annually, up from the previous limit of just 2.
- Other benefits-in-kind: These are non-cash perks that an employer gives you, which have a value but can’t be turned into cash. They’re usually things you can use but don’t own, like a company car, health insurance, or accommodation. The value of these benefits is added to your total income, and you’ll pay tax on it, just like you would on your salary or a cash bonus.
Confused about how much tax you should pay on your bonus?
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5 simple strategies to reduce your tax burden
There are several smart strategies you can use to reduce your tax liability in Ireland. By making use of these allowances and exemptions, you can save money and lower your taxable income.
Here are five effective ways to manage your taxes more efficiently.
1. Pension contributions
Contributing to your pension is a great way to reduce your taxable income. The money you add to your pension is eligible for tax relief. If you’re in the higher tax bracket, you could save up to 40% on the amount you contribute.
The amount of tax relief you can claim depends on your age, with older age groups allowed to claim tax relief on a higher percentage of their income. For example, if you’re under 30, you can get tax relief on up to 15% of your earnings, while for those over 60, the limit is 40%.
2. Salary sacrifice
A salary sacrifice arrangement lets you give up a portion of your pre-tax salary in exchange for specific non-cash benefits, like extra pension contributions or the cycle-to-work scheme. These benefits come out of your gross pay (before taxes are applied), and they reduce your taxable income, which can lower the amount of income tax, PRSI, and USC you pay overall.
3. Cycle to work scheme
The cycle-to-work scheme allows you to buy a new bike and cycling equipment completely tax-free, with limits of up to €1,250 for a regular bike and up to €1,500 for an electric bike. This scheme is designed to encourage cycling to work, which is both eco-friendly and cost-effective.
Here’s how it works:
Your employer purchases the bike and equipment on your behalf, and the total cost is then deducted from your salary over a period (usually 12 months). Since these deductions are made from your gross income (before taxes are applied), your taxable income is reduced, lowering the amount of income tax, PRSI, and USC you pay.
4. Commuter ticket scheme
If you use public transport regularly, your employer can provide commuter tickets tax-free through a salary sacrifice scheme. This means you can pay for your bus, train, or Luas tickets using your pre-tax salary, which reduces your taxable income. By doing this, you pay less tax overall. As a result, employees can save between 28.5% and 52% on their travel costs due to savings on tax, PRSI, and USC.
5. Employee share schemes
Many employers offer share schemes that allow employees to buy company shares at a discounted price or receive shares as part of their pay. These schemes are tax-efficient and can be a great way to save money while also benefiting from your employer’s success. Three common types of employee share schemes are Approved Profit Sharing Schemes (APSS), Employee Share Ownership Trust (ESOT) and Save As You Earn (SAYE) schemes.
For example, with an Approved Profit Sharing Scheme (APSS), you can receive shares from your employer without paying income tax, as long as the total value of the shares doesn’t exceed €12,700 per year. This means that if your employer gives you shares worth up to this amount, you won’t have to pay tax on them.
How Irish Tax Rebates can maximise your bonus payment
With all the different taxes—like income tax, USC, and PRSI—it’s easy to be confused about how much you’ll actually take home. You might even be unsure if you’re paying more tax than you should. That’s where Irish Tax Rebates step in. We take the stress out of the process by helping you understand exactly how your bonus is taxed and guiding you through the claim process. With our expert help, you could get back any tax you’ve overpaid. We will make sure you’re not missing out on money that’s rightfully yours. Let us take care of the paperwork, so you can focus on enjoying your bonus. Contact us today!
FAQs about bonus pay
How much of a bonus is tax free in Ireland?
In Ireland, bonuses are generally fully taxable, with no part of a cash bonus being tax-free, except for non-cash gifts under the small benefit exemption. Currently, this exemption allows up to €1,000 per year in non-cash benefits to be tax-free, but from 2025, the limit will increase to €1,500 per year.
What is the average bonus in Ireland?
The average bonus in Ireland varies depending on the industry, company size, and individual performance. However, on average, employees in Ireland receive a bonus ranging from €1,000 to €5,000 per year. In certain sectors, such as finance or tech, bonuses can be significantly higher, often reaching €10,000 or more.
