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Tax-Free Allowance For Employees In Ireland: All You Need To Know

~7min reading time –
tax free allowance ireland

Tax-free allowances in Ireland allow employers to provide non-cash benefits to employees without any tax implications.

Running a business comes with its share of complexities. It isn't just about driving sales; it also includes managing accounts, filing taxes, and ensuring employees are fairly rewarded.

This is where one of the biggest challenges of running a business arises. Every employer wants to offer their employees the best perks, but the fear of triggering an unknown tax obligation is often what holds them back.

Employee-related taxes are tricky. From travel allowances to reward programs, even the smallest benefits can add up to significant costs if not structured properly.

This is why understanding Ireland's tax-free allowances for employees can transform how one approaches employee allowances. Knowing what is covered under the tax-free allowance helps businesses make strategic decisions.

What Are Tax-free Allowances In Ireland?

Tax-free allowances are specific benefits that Irish businesses can provide to their employees without creating any tax liability for either party. Under normal circumstances, any benefit provided is considered taxable income and is included in an employee's gross pay.

This means any taxable benefit gets added to an employee's income and becomes subject to Income Tax, like USC (Universal Social Charge), or PRSI (Pay Related Social Insurance). The employee then receives their net pay after deductions. However, Revenue has explicitly excluded certain benefits from taxation if they meet the relevant criteria and conditions.

These benefits are non-cash incentives, often referred to as benefits-in-kind. Examples include car parking spaces, canteen meals, medical check-ups, etc. It is important to understand that not all benefits within these categories are automatically tax-free. Each category has certain restrictions and qualifying conditions.

What Are The Eligible Tax-Free Benefits For Employees?

Here are all the eligible tax-free allowances for employees in Ireland:

1. Accommodation:

If an employer provides free or subsidised accommodation, it is generally taxable. However, if the employee is required to live in the business premises to fulfill their duties, then it is exempt from tax. Examples of exempt cases:

  • Care staff in residential centres
  • Hotel managers required to live on-site
  • Caretaking living in building premises

2. Transportation & Parking:

Car parking facilities provided by employers qualify as a tax-free allowance. The Cycle to Work scheme also offers tax-free bicycles and safety equipment. Additionally, travel passes and air miles are also considered a tax-free benefit in Ireland.

3. Workplace Benefits:

Free or subsidised canteen meals are exempt from taxation, provided they are made available to all staff members equally.

4. Technological Equipment:

Information technology equipment provided primarily for business use receives tax-free treatment. This category includes phones, laptops, tablets, software, and other digital tools, provided personal use remains minimal and incidental.

5. Healthcare Benefits:

Medical services qualify as tax-free allowances in two specific circumstances:

  • When employers pay retainer fees to general practitioners on behalf of their workforce
  • When employers fund one annual medical check-up per employee, provided this benefit is offered to all staff members

6. Career Support:

Any examination expenses paid by the employer are exempt from tax if the following criteria are met:

  • The qualification must relate directly to the employee's duties
  • Payments must only reimburse necessary expenses actually incurred
  • All payments must be supported by valid receipts
  • Complete supporting documentation must be maintained

6. Recognition Awards:

Employers can reward their employees for their long service as a tax-free allowance, provided the following conditions are met:

  • The employee's service is at least 20 years
  • The award is a physical gift, which means no money, vouchers, or bonds
  • The cost of the award does not exceed €50 for each year of service

Apart from the long service awards, employees can be rewarded up to five small non-cash benefits or one benefit not exceeding more than €1,500 tax-free under the Small Benefit Exemption Scheme.

7. Immigration Support:

Entry visas and work permits receive tax-free treatment to support international hiring.

How Much Is The Tax-free Allowance For Employees In Ireland?

The value of tax-free allowances for employees varies significantly depending on the specific benefit. While some benefit-in-kind have defined monetary limits, others are unlimited provided their conditions are met.

1. Under the Small Benefit Exemption Scheme, employers can provide up to five small non-cash benefits worth €1,500 annually. If the value of the benefit exceeds, the entire amount is subject to income tax.

2. The taxation exemption for Cycle to Work Scheme varies based on the type of bicycle provided:

  • €3,000 for cargo and e-cargo bikes
  • €1,500 for pedelecs and e-bikes
  • €1,250 for standard bicycles

3. Employers can also provide remote employees who work from home part-time or on a full-time basis, a daily allowance of €3.20 tax-free.

4. In the case of long-service awards, employees can receive tax-free rewards of €50 for each year of service. So, for example, an employee who has worked for 30 years can receive €1,500 (€50*30) as a physical reward.

5. Several benefit categories have no monetary restrictions when conditions are met, including IT equipment for business use, canteen meals available to all staff, and car parking facilities.

Reporting Tax-free Allowance: What Every Employer Should Know

Employers must report to Revenue details of certain expenses and benefits paid to employees. This includes:

1. Benefits provided to employees under the Small Benefit Exemption Scheme

2. Daily allowances paid for remote working employees

3. Expenses or allowances provided for employees' business travels

A report must be sent to Revenue on or before the date of payment to the employee.

Tax-free allowances do not have to be complicated. With CleverCards, you can provide simple and compliant employee benefits. Fill out the form below to learn how.