Tax and Limits

For a temporary period (for years beginning on 1 January 2004), two methods must be used to calculate taxes on contingency and additional pension funds. The method that calculates the smallest amount is the one accepted as the true calculation, and the smallest amount is the one reinstated in the taxable salary.

Note:

PeopleSoft doesn't deliver the taxable exemption rules for additional retirement funds.

• The first methods calculates the exemption limit once a year, in the case of departure, or in December. It is triggered at the same time as the 19 and 85 percent exemptions.

• The second method:

  • Calculates a ceiling equal to 7% of the annual social security ceiling plus 3% of the payee's yearly compensation. This ceiling is limited to 3% of 8 times the annual social security ceiling.

  • Compares the yearly contributions to the contingency funds to this ceiling. The amount of contributions over the ceiling is the amount to be reinstated.

The smallest amount calculated by these methods is the amount reinstated.

Note:

The calculations of these tax limits is done by the formula PRV FM REINT FISCA, which is a member of the PRV SE FISCAL section. The contingency contributions used in these calculations are stored in the accumulator PRV AC COT RFIS SG.

Voluntary Contributions to Contingency Funds and Additional Pension Funds

In the case of voluntary contributions, both the payee and employer contributions are liable to tax. The payee contributions are not deducted from the taxable net salary and the employer contributions are added to the taxable net salary. The PeopleSoft system does not manage voluntary contributions; you must update the accumulators.

Mandatory Contributions

If contributions are mandatory, they are not subject to tax if they are below the legal limits. There are two limits: one for contingency and pension funds and one for contingency funds only. The first limit is for contributions to contingency funds and pension funds. If the contributions from payee and employer do not exceed 19 percent of the annual social security ceiling multiplied by 8, they are not liable to tax. The second limit is for contributions to contingency funds only. If the payee and employer contributions do not exceed 3 percent of the annual social security ceiling multiplied by 8, they are not liable to contributions. If contributions exceed either limit, the surplus is reintegrated back into the taxable base and is liable for tax. If contributions exceed both limits, the largest surplus is added to the net salary. The PeopleSoft system provides the PRV AC 19% FIS SG accumulator and the PRV AC 3% FIS SG accumulator to calculate these limits in the PRV FM REINT FISCA formula. It is your responsibility to update these accumulators.

There are two retirement contribution rates: the contractual rate and the calling rate. The difference between these two rates relates to contributions that do not give entitlements for pension points. For the reinstatement of retirement contributions over the tax limits, the system uses the calling rate to compare the retirement contribution to the limits. The contributions are reinstated in the taxable salary depending on their contractual rate. This is because contributions that do not give entitlements to pension points are not reinstated in the taxable salary.

The employer contributions to contingency and retirement that are over the 3 or 19 percent limit are also included in the levy on salary funding base. The amount that is added to the levy on salary funding base is calculated in the following manner:

• If the limit is only exceeded by the contingency contributions (3 percent limit), the amount over the limit is prorated and is calculated depending on the employer's and payee's contingency contributions.

  The calculation is:

  (amount over the limit) × (employer's contingency contributions) ÷ (employer's + payee's contingency contributions)

• If the limit is only exceeded by the contingency plus retirement contributions (19 percent limit), the amount over the limit is prorated depending on the employer's and payee's retirement contributions.

  The calculation is:

  (amount over the limit) × (employer's retirement contribution) ÷ (employer's + payee's retirement contributions)

• If both of the limits (3 and 19 percent) are exceeded, the highest amount over the limits is prorated depending on the total contributions to contingency and retirement funds.

  The calculation is:

  (highest amount over the limit) × (employer's contingency + retirement contributions) ÷ (employer's and payee's contingency + retirement contributions)