The Small Benefits Exemption Scheme allows an employer to provide an employee with a small benefit tax free each year. These tax free benefits are frequently paid at Christmas, and so the scheme is sometimes known as the Christmas bonus scheme.
Prior to October 2015, each benefit was capped at €250, but now it extends to €500. Both full-time and part-time employees are eligible for the benefit.
Terms and conditions of tax free benefits
- The benefit must not exceed €500.
- The benefit must not be in the form of cash. For this reason vouchers are traditionally given. Such vouchers must be used to purchase goods and services and cannot be redeemed for cash.
- Only the first benefit each year will qualify for the exemption.
- Unused benefit allowance in one year cannot be carried over into the next year.
If a benefit exceeds €500, the full value of the benefit is subject to tax, USC and PRSI. For example if a €600 voucher is given, the full €600 should be included as a benefit in kind on payroll and the relevant tax, USC and PRSI calculated.
If two benefits are received during the year, only the first one will qualify for the exemption. As an example, if an employee receives a €100 voucher in May, and a €400 voucher in December, only the €100 will qualify for the exemption and €400 should be subject to tax, USC and PRSI.
For more tax saving ideas, see our Tax Saving Ideas page.