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Tax on Overtime Rules

One of the key measures set out in the 2020 Budget was a reduction in the tax rate on overtime for employees (provided they meet certain criteria). This was enacted by the introduction of Article 90B of the Income Tax Act. Legal Notices 245 and 246 of 2020 were published on the 16th of June 2020 in this regard. The legal notice specified the criteria that the employment income needs to qualify for the decreased rate and the relevant changes made to the FSS rules.

In summary, the first 100 hours of overtime income derived on or after the 1st of January 2020 may be taxed at a reduced flat rate of 15%.
The following conditions need to be met:

The payee is in full-time employment and registered as such with Jobs plus.

The payee is not engaged in a managerial post, meaning he is not any of the following:

Director of the company;

Partner of the partnership with which he is employed;

An officer with managerial functions;

The rate of the basic weekly wage of the payee does not exceed €375 during a specific pay period. The basic weekly wage is defined as the gross wage or salary paid excluding any remuneration for overtime, any form of bonus, any extra allowances, any remuneration in kind or commissions.

The maximum overtime rate per hour does not exceed twice the hourly equivalent of the basic weekly wage, meaning overtime x1.5 and x2 of the payee’s basic hourly rate qualifies. The 100 hours are in total and not separate entitlements for the different overtime rates. Overtime at higher rates is excluded for the purpose of this measure.

The payee has not opted to exclude his overtime income from being taxed at the reduced rate of 15% by ticking Part E of the FS4. If not, the payee automatically opts for his overtime income to be taxed according to the provisions set out by this measure. The payee may choose to revoke this at any time.

These 100 hours are referred to as the maximum qualifying hours. Overtime income exceeding the maximum amount during a calendar year is taxed at the same rate as the rest of the payee’s emoluments. In the case of a married couple these rules shall be applied separately to the qualifying overtime income by each of the spouses.

The qualifying overtime income and tax deductions at the reduced flat rate of 15% are to be declared separate from the rest of the payee’s income and tax deductions as ‘Overtime (Eligible for 15% tax deduction)’ and ‘Tax Deductions (Eligible overtime income)’ respectively in the relevant FSS forms (FS3, FS5 and FS7).

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