After you secure employment in Ireland, you will be looking forward to your first pay cheque. After all, you may have worked hard to land a position you want and now you get to reap the benefits of your endeavours. However, before you can fully appreciate the income from your new role, you need to make sure that you have a clear idea of what income taxes you will be required to pay. By understanding the deductions you will see on your pay cheque, you will be more informed of what your rights and responsibilities are when it comes to working in Ireland.
This page will act as an overview of income taxation in Ireland. It will provide a useful glossary of the relevant taxation terms, as well as looking at different income tax brackets and income tax best practice for self-employed people.
What is PAYE and how does it work?
The majority of people working in Ireland fall under the Pay As You Earn, or PAYE system as it is more commonly known. You will see this as a deduction on your pay cheque. The main advantage of the PAYE system is that the income tax you are required to pay is deducted at source. From there, it is sent directly to Revenue. The role of Revenue is to collect tax and other levies on behalf of the government.
This direct approach means that, unlike employees in Canada and the United States, for example, PAYE workers in Ireland do not have to file individual taxes at the end of each year. The Irish tax year runs in line with the calendar year, starting on January 1 and finishing on December 31.
Under the PAYE system, income tax is charged on all wages, fees, perks, profits and pensions. In addition, income tax is payable on income earnings of all types. This includes Christmas bonuses, holiday pay, overtime and non-cash pay such as the use of a company car, paid vacations and tips, if applicable.
So, how much income tax will I have to pay?
The short answer to this question is that it depends. As is the case in most countries, a progressive tax system is in place in Ireland. This means the amount of PAYE tax you are required to pay will be determined by the income you receive — the more you earn, the more PAYE tax you will be liable for. For the purposes of tax calculation, Ireland operates a number of distinct tax bands which determine how much PAYE tax you will have to pay.
The first portion of your income (the standard rate of tax) is taxed at 20 percent. In 2018, the standard rate of tax band was capped at €34,550. This means that the amount of tax you are required to pay on earnings to this amount, minus any relevant deductions, is 20 percent. For every cent over this total, the higher rate of tax is required, and this is capped at 40 percent.
If you are in a single-income marriage or civil partnership (i.e. where there is only one income), then the standard rate of tax band extends to €43,550. If there are two incomes then the total increases to €69,100. However, a number of conditions apply to this particular subset of employees. Single parents in Ireland have a standard rate of tax band of €38,550.
Finally, tax credits, exemptions and reliefs are in place for low-income earners, those aged over 65 and for some artists. More information on your tax entitlements and responsibilities can be viewed here.
What other taxes will I have to pay?
Along with PAYE, there are two other major forms of tax that you will be deducted from your pay cheque after you start working in Ireland: Pay Related Social Insurance (PRSI), and the Universal Social Charge (USC). Let’s start with PRSI.
PRSI: Employers and employees are both required to pay PRSI. This compulsory tax is paid into the Social Insurance Fund. This fund is an investment account that is under the joint control of the Minister for Employment and Social Protection and the Minister for Finance. The monies collected by the Social Insurance Fund is then often used to fund social welfare related payments. This could take the form of Illness Benefit or Jobseeker’s Benefit. The latter is a payment made to people who have been made unemployment or lost hours and have sufficient PRSI contributions made.
USC: The USC is a tax that came into effect in Ireland on January 1, 2011 following the worst economic crisis in the country’s history. Anyone with a gross income of more than €13,000 is required to pay this tax. This tax is paid either weekly or monthly, and reductions are in place for those aged over 70 and to medical card holders under the age of 70.
Taxation for Self-Employed People
Self-employed persons in Ireland are taxed under the self-assessment system once a year. As the name suggests, self-assessment means that you are responsible for making your own assessment of tax due. You pay Preliminary Tax (an estimate of tax due for your current trading year) on or before October 31 each year and you must make a tax return for the previous year no later than October 31.
Like PAYE workers, self-employed people are required to pay USC, while those who earn €100,000 or more must pay an additional three percent, bring their USC total to 11 percent. The full-self assessment for self-employed workers can be made by completing the Form 11.