Revenue Guidance – Employer Contributions to a PRSA

For most employees that will be in December’s payroll except in cases where the employee leaves service before that date. As a result a BIK tax liability will only arise for the employee if the employer PRSA contribution is greater than 100% of the employee’s earnings in the entire calendar year for that employment.

 In our latest Techtalk we look at some key examples from the pensions manual.

The background:

The funding rules for PRSAs changed with effect from the 1st of January 2025, introducing an “employer limit” on employer contributions to an employee’s PRSA. The “employer limit” is the maximum amount an employer can contribute, without the contribution being considered a BIK for the employee and is also the maximum contribution for that employee for which an employer can claim a deduction for tax purposes. 

Although these new rules seemed quite straightforward, questions arose early this year as to how to apply the 100% of Salary limit where an employer contribution of 100% of expected annual salary was made early in the calendar year (E.g. in March) when the employee had not yet received their full year’s earnings from the employment. This was particularly relevant for employers with a non-calendar year accounting period (i.e. April 2024 – March 2025) but who wanted to maximise the employer contribution for that employee prior to the end of their accounting period. Revenue have now updated the Pensions Manual Chapter on PRSAs to include additional guidance on this issue including some examples.