Employment tax update: PAYE Settlement Agreements for 2025

What is a PAYE Settlement Agreement?

A PAYE Settlement Agreement (PSA) is a voluntary arrangement that allows employers to pay the income tax, USC and PRSI arising on certain benefits provided to employees for which the employer would otherwise have to deduct the tax from the earnings of the employees via the normal PAYE system.  

Where the employer incurs the tax on behalf of the employees under the PSA arrangement with Revenue, such benefits should not be included in the monthly payroll returns of the employer and the benefits will not form part of the employees’ total income.

These benefits are typically:

• Minor in value
• Irregular in their frequency
• Non-cash in nature

Examples of such benefits would include non-cash gift vouchers (excluding tax-exempt items which fall under the SBE), staff entertainment not falling with Revenue’s specific exemptions and provision of taxis to/from work that do not meet the conditions to be considered tax-free.  

The PSA is particularly useful for managing smaller benefits efficiently, maintaining goodwill with employees, and avoiding the administrative burden of adjusting payroll runs for minor items.

How does a PSA work?

Employers who wish to enter into a PSA with Revenue in relation to 2025, must submit an application in writing before 31 December 2025.

The tax due under the PSA must be paid to Revenue within 23 days after the end of the year (i.e. by 23 January 2026).

If payment is not made on time, the PSA application becomes invalid, and the benefits must be processed through payroll and may require a self-correction or voluntary disclosure of the payroll records, which may give rise to potential interest and penalties for the employer.

The Revenue Commissioners updated its guidance manual in this area recently.  Some of the main changes are:

• Gross-up of tax - Once an employer enters into a PSA, they are responsible for calculating and paying the associated income tax, USC, and PRSI on these benefits. The employer calculates the tax due by increasing the value of the benefit to reflect the tax the employee would have paid (known as 'grossing-up'). Employers must calculate the grossed-up value of benefits using only the applicable income tax rate for each employee (20% or 40% respectively). The USC and PRSI are calculated separately on the grossed-up amount. For employees on the higher tax band, this change means benefits are grossed up at 40% instead of 52.2%.
• PRSI Rate - Revenue has confirmed that a combined PRSI rate of 15.15% applies to PSAs from 1 October 2025. The applicable PRSI rate is based on the date the PSA is submitted, not when the benefit was provided, which means that all benefits in a 2025 PSA should use the 15.15% rate. This ensures consistent application across all reported benefits.
• Small Benefit Exemption (SBE) - Revenue’s updated guidance reiterates that PSAs relate to minor and irregular benefits only and that relevant incentives that are exempt under the provisions of the SBE should not be reported as part of the PSA submission. Employers cannot opt to tax a relevant incentive through a PSA in order to allow an employee to avail of the SBE later in the year when an additional benefit is provided.
• PSA submission for 2024 - In light of the above changes, employers may wish to revisit previous PSAs that were submitted to Revenue for 2024 to determine whether it is possible to claim a refund of overpaid PAYE, USC and PRSI. 

How can Forvis Mazars help?

We can support employers with preparing and submitting PAYE Settlement Agreements (PSAs) for 2025 to the Revenue Commissioners. We can also assist employers in seeking a refund for prior year refunds related to PSA submissions, if applicable. 

Given the fast-approaching deadline of 31 December in relation to the PSA for 2025, we recommend that employers take action on this as soon as possible.

If you require assistance in relation to the above, please contact a member of the Forvis Mazars employment tax team below.