The Government extended the Small Benefit Exemption in the Budget, doubling to €1,000 the amount that employers can give workers by way of tax-free vouchers a year.
The gift exemption is a popular way for businesses to incentivise and reward staff.
This week, a Pay and Employment Practices survey by CIPD/IRN showed 56% of employers are currently giving workers vouchers.
In his Dáil speech, Minister for Finance Paschal Donohoe said: "The Small Benefit Exemption allows an employer to provide limited non-cash benefits or rewards to their workers without the payment of income tax, PRSI and USC.
"I am increasing the annual limit provided for in the exemption from €500 to €1,000 and will also permit two vouchers to be granted by an employer in a single year under this exemption.
"I propose that these changes will apply in the current tax year, so that additional benefits can be paid this year if an employer wishes to do so."
It is good news for employers who wish to reward employees for their work by gifting a bonus payment tax-free.
It is also good news for employees who receive the vouchers, and it is good news for the economy because the money, in the form of vouchers, will be spent in shops, restaurants and hotels.
Director of CIPD Ireland Mary Connaughton said availing of the voucher will save 50% of the amount because it is tax free and doesn't have to go through payroll.
She strongly encouraged employers to avail of the additional benefit.
"It’s a great way to reward employees for their commitment, and also particularly at this time, it can counteract some of the inflationary pressures that employees are experiencing," she said.
Ms Connaughton said the Government’s commitment to implement the measure this year means employers have an opportunity to show extra support to hard pressed workers as we face a potentially difficult winter.
The Small Benefit Exemption is subject to terms and conditions.
It must not be in the form of cash, so it must be a voucher or similar, and if the benefit exceeds €1,000 in value, the full value is subject to tax.
Marian Ryan, Consumer Tax Manager at Taxback.com, said that previously, employees could only receive one small benefit of €500 or less a year tax free and any additional small benefits or vouchers would in fact be taxable.
It could only be applied once in any given year which meant that employers needed to be savvy as to when and how this was issued to employees.
"So, say for example your employer gifted you a €100 hotel voucher in March of any given year, this would be tax free," Ms Ryan said.
"However, if in July of that same year your employer gifted you a €200 One4All voucher that €200 would be taxable."
This changed slightly during the pandemic with Revenue allowing two gifts in a year to qualify for the exemption once the combined value of both gifts did not exceed the €500 threshold.
If more than two incentives are issued, it is only the first two which may qualify for the Small Benefit Exemption.
This concession applied for the 2020 and 2021 years of assessment and continues this year.
Ms Ryan said Minister Donohoe's extension of the exemption allowing payments of up to €1,000 by way of two vouchers is "hugely beneficial to employers and employees alike as employees could potentially receive a total value of €1,000 tax free during 2022".
"To put it another way, if an employee was to receive a cash bonus which is taxable in full the cash bonus would need to be in the region of €1,950 before taxes to equate to the same monetary value to the employee once taxes are deducted."
The measure has also been welcomed by retailers who will see vouchers spent in their businesses.
It comes at a good time for retail, with sales down 5.6% on last year according to the latest figures from the Central Statistics Office.
Arnold Dillon, Director of Retail Ireland, said the increase in the exemption "is a really useful step that allows business to better reward their staff, but also channels a lot of that money directly into the domestic economy."
"Money received in vouchers is typically spent in local retailers, so the measure also supports local jobs and businesses in the process."
Companies had been looking at ways to support their staff during the cost of living crisis, and this goes some way to support employers to do that.
It will also facilitate businesses to encourage loyalty among staff.
"Right across the economy many businesses continue to struggle to attract and retain talent, so we would be confident the many firms will make use of the expanded scheme over the coming months," said Mr Dillon.