Employment tax - Budget 2026

KPMG insights – our view

Ireland’s competitiveness in attracting talent

Ireland continues to have one of the most progressive income tax systems across the OECD. The entry point to the higher 40% income tax band remains below the average wage - this damages our competitiveness by limiting employers’ ability to attract skilled professionals to Ireland and discourages individuals from upskilling and pursuing higher-paying jobs. The absence of changes to income tax in Budget 2026 is disappointing in this regard.

SARP was due to expire at the end of 2025. While the extension of SARP for a further five years is a welcome development as it has been pivotal in attracting and retaining highly skilled and internationally mobile executives, the increase in the minimum basic annual salary requirement from €100,000 to €125,000 is very disappointing as this will have a negative impact on the number of employees who will be eligible for SARP.

KPMG has called for not only a reduction in the minimum basic salary requirement but also for an amendment to this condition such that other variable pay items such as commission, bonuses and share based remuneration should be included in determining eligibility for SARP.  

In addition, as in prior years, we have called for the enhancement of SARP as there are certain aspects of the relief which are limiting its impact, including –

• The €1 million cap on the amount of income that can benefit from the relief;
• The deadline to notify Revenue an employee’s intention to claim SARP (which is currently within 90 days of the employee’s arrival to Ireland);
• The relief does not apply to USC or PRSI;
• The relief is only available for a five-year qualifying period; and
• New hires are not eligible for the relief, meaning it is largely unavailable to indigenous businesses.

Helpfully, the minister did announce that amendments with respect to the administrative requirements of SARP are expected to be introduced in the Finance Bill. We expect this is in response to recommendations made to Government following a review of SARP commissioned by the Department of Finance earlier this year.

Whilst the separate extension of the FED demonstrates a positive message from Government to support the expansion of Irish indigenous business overseas, in practice the level of uptake on this relief continues to be low due to some of the practical challenges associated with the relief.

The taxation of share-based remuneration

In 2024, the Department of Finance launched a consultation on the taxation of share-based remuneration. In our response, KPMG outlined several recommendations aimed at enhancing both the effectiveness and attractiveness of such remuneration in Ireland.

In Budget 2025, the then Minister for Finance acknowledged the importance of the consultation and indicated that the Government would consider the recommendations outlined in the resulting report. However, one year later, there has been little progress. While the extension of the KEEP scheme is a welcome development, significant challenges remain regarding how businesses and employees can meet the eligibility criteria.

Equity is increasingly becoming a key component of remuneration packages, for both multi-national and indigenous privately owned businesses. Therefore, it is crucial that Ireland’s tax regime for share-based remuneration is internationally competitive and best in class.

We would have liked to have seen a broader simplification of the taxation of share-based remuneration, including alignment of the tax treatment of restricted stock units for globally mobile employees.

The cost of employment in Ireland

The minister announced that the minimum wage will increase by 65 cent to €14.15 per hour from 1 January 2026. In conjunction with the introduction of the Government’s Auto-Enrolment Retirement Savings Scheme on the same date, this will significantly raise the overall cost of employment for businesses.

To alleviate soaring employment costs and the high personal tax burden borne by employees, we would have liked to have seen the introduction of a cap on earnings for employee and employer PRSI. Instead, in line with the PRSI Roadmap already agreed by Government, PRSI rate increases will continue into 2028. 

While the objective of these changes is to help address the long-term sustainability challenges facing the Social Insurance Fund and support the retention of the State Pension age at 66, they present a further additional cost for employers over the years ahead in addition to Auto-Enrolment.