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Introduction of New Tax and Duty Manual on PAYE Settlement Agreements (PSAs)

Revenue published a new Tax & Duty Manual (TDM) Part 42-04-73, which provides comprehensive guidance on certain aspects of PAYE Settlement Agreements (PSAs). 

As a reminder, a PSA allows an employer to make one annual settlement of PAYE, USC and PRSI on minor and irregular non-cash benefits provided to employees where the real-time operation of payroll is impractical. The PSA enables employers to bear the cost of the PAYE, USC and PRSI due on eligible benefits, without passing this on to the employee.

This new manual is intended to provide clarity on the methodology for calculating taxes due on PSAs. 

The key points of interest to employers 

• 1. Gross up methodology
  A requirement of a PSA is that tax is calculated on a “grossed up” basis. The manual now confirms that benefits should be grossed up at income tax rates only (e.g. typically 40% rather than 52.1%).
• 2. Employer PRSI due
  Employers typically have settled Employer PRSI as the normal payroll rates, e.g. currently 11.15% for employees at Class A1. This means that combined (employee and employer) PRSI was being paid at 15.25%. The manual confirms specific provisions in the Social Welfare Consolidation Act 2025 that indicates a specified combined rate (covering both employee and employer PRSI) of 14.95% for PSAs from 1 October 2024. This is due to increase to 15.15% from 1 October 2025.
• 3. Interaction with Small Benefit Exemption
  The manual includes some commentary on the Small Benefit Exemption (SBE) and restates the position that employers cannot opt to tax this incentive under the PSA to allow the employee avail of the SBE at a later date with a later benefit. The sequencing and tracking of benefits is critically important in assessing the availability of the SBE.

Next Steps

The TDM is a welcomed update for employers seeking clarity and guidance on managing minor and irregular benefits through the PSA. For some employers, the clarifications on the gross up methodology and PRSI rates will result in lower taxes due on PSAs than more traditional methodologies that may have been applied in the past.

However, it is important to note that PSAs remains complex with challenging deadlines to meet. While the manual clarifies some aspects, a lot of uncertainty remains such as the definition of what can be considered “minor and irregular”. Careful consideration is needed to determine what is eligible for inclusion in a PSA and the format that the PSA is submitted to Revenue to address the most common queries upfront. If you have any questions on a key topic area, please reach out today to discuss.

We look forward to speaking with you.