Nearly all income is liable to tax. Tax on income that you earn from employment is deducted from your wages by your employer on behalf of the Irish Government. This is known as Pay As You Earn (PAYE). The amount of tax that you have to pay depends on the amount of the income that you earn and on your personal circumstances. There are a range of income tax reliefs available that can reduce the amount of tax that you have to pay.
The Universal Social Charge (USC) is a tax on your income. It is charged on your gross income before any pension contributions or PRSI. You cannot use tax credits or tax relief (except for certain capital allowances) to reduce the amount you must pay. Find out more in our document on the Universal Social Charge.
At the start of the tax year, the Revenue Commissioners will send you a Notice of determination of tax credits and standard rate cut-off point. This shows the rate of tax that applies to your income and the tax credits that reduce the tax payable. Revenue will also send a summary of this certificate to your employer so that your employer can deduct the correct amount of tax.
If you are changing job or starting work for the first time, and your
employer has not received this information from Revenue or a previous employer,
you will be taxed on a temporary basis called emergency tax. You can get more
information about tax
and starting work or changing
Tax is charged as a percentage of your income. The percentage that you pay depends on the amount of your income. The first part of your income, up to a certain amount, is taxed at 20%. This is known as the standard rate of tax and the amount that it applies to is known as the standard rate tax band.
The remainder of your income is taxed at the higher rate of tax, 41%.
The amount that you can earn before you start to pay the higher rate of tax is known as your standard rate cut-off point. See case studies for an example of how to calculate income using tax rates and the standard rate cut-off point.
Standard rate cut-off points
There are no changes to tax rates or standard cut-off points in 2013.
|2010||2011, 2012 and 2013|
|Married couple/civil partners, one income||€45,400||Balance||€41,800||Balance|
|Married couple/civil partners, two incomes||Up to €72,800
(increase limited to the amount of the second income)
|Balance||Up to €65,600
(increase limited to the amount of the second income - see example below)
|One parent family||€40,400||Balance||€36,800||Balance|
In 2013, the standard rate cut-off point for a married couple or civil partners is €41,800. If both are working, this amount is increased by the lower of the following:
If one person is earning €48,000 and their spouse or civil partner is earning €25,000:
The standard rate cut off point for the couple is €41,800 plus €23,800. The increase in the standard rate band is not transferable between spouses or civil partners, so the first spouse or civil partner's tax bands would be calculated as €41,800 @ 20% = €8,360 and €6,200 @ 41% = €2,542. The second spouse or civil partner's tax bands would be calculated as €23,800 @ 20% = €4,760 and €1,200 @ 41% = €492.
Tax allowances reduce the amount of tax that you have to pay. The amount by which a tax allowance will reduce your tax depends on what your highest rate of tax is. This is because the allowance is subtracted from your income before it is taxed. In effect, it is ‘taken off the top’ of your income which can then be taxed at either the standard rate or the higher rate, depending on your income level.
If, for example, you have a tax allowance of €200 and your highest rate of tax is 20%, then this means that the amount of your income that is taxed at this rate is reduced by €200 and so your tax is reduced by €40 (€200 x 20%).
If you have the same tax allowance of €200 but the highest rate of tax
that you pay is 41%, then the amount of your income that is taxed at 41% is
reduced by €200 and so your tax reduction is €82 (€200 x 41%).
This is known as tax allowance at the marginal rate.
When your employer is taking allowances into account in calculating your income tax, the way that this is done is by adjusting your standard rate cut-off point.
Allowances at the marginal rate include:
Tax credits reduce the amount of tax that you have to pay. They work differently to tax allowances because they are deducted after your tax has been calculated and so a tax credit has the same value to all taxpayers.
After your tax is calculated, as a percentage of your income, the tax credit is deducted from this to reduce the amount of tax that you have to pay. So a tax credit of €200, for example, will reduce your tax by that amount.
You may be entitled to various tax credits depending on your personal circumstances. You can get more information about the different types of tax credits and reliefs and the tax reliefs available for people with disabilities. If you are entitled to tax credits that are not listed on the Notice of determination of tax credits and standard rate cut-off point that you get from Revenue, you should contact Revenue to inform them.
Before calculating your income tax, subtract the following from your income:
Your taxable pay is then taxed at 20% of income below the standard rate cut-off point. The amount in excess of the cut-off point is taxed at 41%. This gives your Gross Tax.
The value of your tax credits is then subtracted from this to give the amount of tax that you have to pay.
The standard rate cut off point may vary according to your personal circumstances. You may be entitled to tax allowances that will raise your standard rate cut off point. Alternatively, your standard rate cut-off point could be lowered. This could arise, for example, if most of your income is from your employer but you also have income outside this from which tax has not been deducted. For more information - see below.
You can also view and update your tax details online.
Under the PAYE system, income tax is charged on all wages, fees, perks, profits or pensions and most types of interest. Tax is payable on earnings of all kinds that result from your employment (including for example, bonuses, overtime, non-cash pay or 'benefit-in-kind' such as the use of company car, tips, Christmas boxes and so forth).
Money you get which is not liable to income tax may be liable to other taxes. If you get gifts or inheritances, you may have to pay Capital Acquisitions Tax. If you sell assets such as property or shares you may have to pay Capital Gains Tax.
Income that may be exempt from tax includes the following:
If you are on low pay you may not be liable to pay any tax because your tax credits and reliefs are more than or equal to the amount of tax you are due to pay. (There is no income tax exemption for low income earners under 65.)
You are completely exempt from income tax if you are over 65 and your income is below the following limits in 2012:
Additional allowance for each of the first two children: €575
Additional allowance for third and subsequent children: €830
For a child to qualify for the additional allowance they must live with you during the year and be either:
The child may be an adopted child, a stepchild or any child that you support and have custody of. Revenue's information leaflet Tax Exemption and Marginal Relief (IT 8) (pdf) gives information on available exemption limits and tax relief. If your income is over the limit then you may benefit from marginal relief.
If your income exceeds the limits for low income exemption, but is less than twice the amount of the limit then you can claim marginal relief. Under marginal relief, you are taxed only on the amount by which your income exceeds the limit, but a special tax rate of 40% applies to this amount.
Cormac is 66 years of age and is married. His total income for 2012 is €40,000. Under the usual method of calculating his tax liability it would be €2,560 but under marginal relief it would be €1,600.
Under the usual method the tax liability is calculated as
The income is below the standard rate cut-off point so all of it is taxed at the standard rate of 20%
40,000 x 20% = €8,000 gross tax
His tax credits are:
The tax credits are subracted from the gross tax to give the tax payable
€8,000 - €5,440 = €2,560
Under marginal relief the tax liability would be calculated
Total income: €40,000
Low income exemption limit: €36,000
Gives €4,000 as the amount by which the income exceeds the limit.
Marginal relief restricts the tax payable to 40% of this.
4,000 x 40% = €1,600
Some work expenses can be deducted from your income before it is assessed
for tax. To qualify, the expenses must be necessary in order to do your work
and must have been spent entirely for that purpose and no other.
See Revenue for more information on expenses that can be deducted for tax purposes.
Your standard rate cut-off point can vary if your income tax is calculated taking into account any of the following:
Tax allowances have the effect of:
Increasing tax credits by the amount of the relief at the standard rate of tax. This grants relief at the standard rate of tax.
Increasing the standard rate band by the amount of the relief. This adds the difference between relief at the higher rate of tax and the standard rate of tax.
This ensures that relief is obtained in full at the higher rate of tax if applicable.
For example, a tax allowance of €1,000 would have a value of €200 to a taxpayer on the standard rate and a value of €410 to a taxpayer on the higher rate. The way this is calculated is to increase tax credits by €200 (1,000 x 20% standard rate of tax). This is the amount of the benefit to a standard rate taxpayer but the tax allowance would have a higher value for a taxpayer paying tax at the higher rate. This is achieved by increasing the standard rate cut-off point by €1,000. This means that for a higher rate taxpayer, €1,000 that would be taxed at a rate of 41% is instead taxed at 20%, a saving of €210 (€410 – 200 ) in addition to the €200 saved by the increase in tax credits. The increase in the standard rate cut-off point would not effect a taxpayer already paying tax only at the standard rate so he/she would only benefit from the increased tax credits.
Benefits in kind and Non-PAYE income have the opposite effect in calculations:
Decreasing tax credits by the amount of the income at the standard rate of tax
decreasing the standard rate cut-off point by the amount of the income.
This has the opposite effect to the example above. In this case, €1,000 would decrease the tax credits by €200, affecting both standard and higher rate taxpayers. It would also decrease the standard rate cut-off point by €1,000 having the effect of increasing the tax liability for higher rate taxpayers only.
If you have a question relating to this topic you can contact the Citizens Information Phone Service on 0761 07 4000 (Monday to Friday, 9am to 8pm) or you can visit your local Citizens Information Centre.