Taxation of benefit in kind

Payment of employee tax by the employer

As an employer, you can choose to pay tax on a benefit on behalf of your employee. How you do so will depend on the nature and frequency of the benefit.

Payment of employee tax on regular benefits

You may pay the tax due on regular benefits to employees. This does not include major benefits such as cars. The grossed-up benefit amount and the taxes paid by you must be included in the payroll of the employee. Your employee will get credit for the Income Tax and Universal Social Charge (USC) paid and a Pay Related Social Insurance (PRSI) record for the contributions made.

Calculating tax (grossing-up)

If you want an employee to receive a benefit without affecting their net pay, you must increase the benefit amount entered in payroll. This increased benefit allows you to deduct the employee's rate of tax, leaving the employee with the original benefit value.

The increased benefit is called the 'grossed-up amount'. The following example shows how this is calculated.

Payment of employee tax on minor and irregular benefits

If you want to pay the tax due on employee's benefits that are minor and irregular, you must arrange this with Revenue. This can be done by way of a PAYE settlement agreeement (PSA). To arrange a PSA, you can make an application to Revenue in writing. Your PSA application must be received by us on or before 31 December in the relevant tax year. The PSA arrangements do not apply to:

• cash payment of wages, salaries or bonuses
• large benefits (such as company cars, free accommodation or preferential loans)
• and
• round sum allowances.

If you pay your employee's tax on a minor and irregular benefit, this will not count as income. The employee cannot claim credit for tax you have paid. Also, the employee cannot count the PRSI which you have paid towards their own records.