In 2020, Article 90B was introduced in the Income Tax Act (ITA), which provided that with effect from 1st January 2010, an individual can opt to have his qualifying overtime income be subject to tax at the a reduced rate of 15%. LN 245 of 2020 had been published which sets out the rules governing the application of this reduced rate.
The 15% tax rate applies to qualifying overtime income up to an amount not exceeding an amount derived by multiplying the number of qualifying overtime hours (up to 100 hours) by the rate per hour at which the overtime is paid to that individual for overtime performed (but not exceeding twice the hourly equivalent of the basic weekly wage). The hourly equivalent of the basic weekly wage is to be calculated by dividing the basic weekly wage by 40.
Taxation on qualifying overtime income is thus calculated as follows:
15% X Number of qualifying overtime hours (up to 100 hours) X Overtime rate per hour (not exceeding twice the hourly equivalent of the basic weekly wage).
Qualifying overtime is that performed by a full-time employee who does not occupy a managerial post and whose basic weekly wage for that employment does not exceed €375 per week. Managerial post is defined in the rules as a post of employment of a person who is a director or the company or a partner of the partnership with which he is employed or who is an officer with managerial functions.
By means of LN 68 of 2022, the Government has amended the Tax on Overtime rules so that with effect from year of assessment 2023, the 15% reduced rate of tax shall apply to qualifying overtime income up to an amount not exceeding:
- Ten thousand Euro; and
- The amount resulting when the ACTUAL number of hours (i.e. no longer limited to 100 hours) is multiplied by the overtime rate per hour, which must not exceed twice the hourly equivalent of the basic weekly wage.
According to the rules, an individual may elect to have his overtime income excluded from the scope of article 90B of the ITA i.e. added to the other income derived during the year and taxed at the applicable tax rates rather than at the reduced rate of 15%. In the case of a married couple, Article 90B of the ITA and these rules shall be applied separately to the income derived from overtime performed by each of the spouses.