Tax hike on the way for workers as second PRSI increase to come into effect

In 2024 the Government signed off on measures to increase the rate of PRSI (pay related social insurance) that all workers must pay over the coming years. 

This means that each October, from 2024 to 2028, workers will be hit with an increase in their PRSI bill.  

Here's how much workers can expect to pay as well as what they'll receive in return. 

What’s the hike?

The rate of PRSI will be hiked by 0.70 percentage points in total from October 2024 to October 2028.

Last year the first hike came into effect and next month PRSI will increase by another 0.10 percentage points. 

At the moment most PAYE workers pay 4.10% PRSI so this means they’ll be paying 4.20% from next month and 4.70% by 2028.

The self-employed will see similar hikes while employers’ PRSI will also increase by the same amount.    

Here’s a look at how the hike will be implemented over the next few years. 

How much will the hike cost?

If someone is earning the average full-time wage of around €45,000, the hike in October will cost workers another €45 in PRSI over a full year, on top of a similar increase last year. 

After five years, the average worker will be paying an extra €315 a year in PRSI or around €26 a month. 

So it’s not necessarily a huge sum of money. But it’s ultimately a tax increase and will undo some of the USC decreases the Government has implemented — to much fanfare — in recent years.      

It’ll also increase the cost of doing business for employers, some of which may be passed on to consumers in the form of higher prices. 

Is anyone exempt?

Anyone under the age of 16 or over 70 doesn't pay PRSI. And if you're earning €352 or less per week (before tax is deducted) you're also exempt (though your employer will pay employer's PRSI on your wage). So these changes won't affect you.

Why is PRSI being hiked?

There are two main reasons why PRSI is being increased. 

The first is as a result of the Government’s decision to keep the pension age at 66. 

A Government-appointment commission had recommended increasing the age to 68 over the coming years given the spiralling cost of paying for pensions as a result of an ageing population as well as increased life expectancy. 

But the Government decided not to proceed with the commission’s recommendations after coming under political pressure.  

However there was always going to be a cost for this decision.

The second reason for the hike is to pay for new social welfare benefits, the most important of which is the new pay-related jobseeker's benefit.   

Earlier this year, a tiered benefit for the unemployed was introduced based on how much a worker was previously earning and how long they have been unemployed. 

This replaced the previous universal payment system and brought Ireland into line with most other EU countries.

The new tiered system of payments provides workers who lose their jobs 60% of their previous earnings – up to a maximum of €450 a week – for the first three months. Workers will then be paid 55% of previous earnings – up to a maximum of €375 per week – for the next three months. Then for the final three months there'll be a payment of 50% of previous earnings — up to a maximum of €300 per week.

If a person is still unemployed after the nine-month period, they can apply for the basic Jobseeker’s Allowance, which is currently €232 a week.

Under these major reforms, people who have a long work history and who have contributed to the system via their PRSI will receive enhanced benefits if they find themselves in that awful situation of losing their job. This new system represents an enhanced safety net for workers and will help to soften the cliff-edge drop in income that can be faced when a person suddenly loses their job.

Social Protection Minister at the time, Heather Humphreys

More hikes on the way?

The long-term affordability of the State Pension still remains a key challenge. To help address this the Government is finally introducing auto-enorollment for pensions in January. 

The pensions crisis is the financial equivalent of the climate crisis. It won’t happen suddenly overnight but it will just get worse and worse over the coming decades unless something is done. And just like the climate crisis, many people seem to have their heads in the sand about it. 

There are currently around five working age people to pay for every one person over the age of 65. However by the year 2051 this will fall to just 2.3 people for every one person over 65 according to CSO forecasts. So we're soon going to have far fewer workers having to pay for far more pensioners.   

The Irish Fiscal Advisory Council has said the pensions issue is one of the main challenges facing Ireland’s public finances and has said PRSI will need to be hiked even further in the coming years. So it's unlikely these PRSI increases will be the last. 

You also have to wonder how long the current situation, where those earning up to almost €19,000 a year pay no PRSI at all can last. In most European countries PRSI/social security exemptions are nowhere near this generous.     

In recent years, Ireland’s windfall corporate tax receipts have helped shore up the country’s finances and allowed the Government to postpone making some tough financial decisions. But this is unlikely to be the case for much longer.