If you’re not sure how tax is calculated, you can end up paying more than you should. In fact, we found that over 82% of our PAYE customers* overpay their taxes!
Every year Revenue issues a Tax Credit Certificate to every employee. This certificate shows the tax credits and standard rate cut-off point that applies to you for the year ahead. In this quick guide, we’re going to simplify how your tax is calculated. So first up:
What are Tax Credits?
Tax credits are great. They are like money-off vouchers against your tax bill. The more credits you have, the less tax you will pay and the higher your net salary will be. Your basic credits are your:
- Personal credit (worth €1,875**) and
- PAYE credit if you are working (worth another €1,875**).
After these two credits, it is up to the individual to claim any more that they may be entitled to, such as:
- Tuition fees
- Flat rate expenses
- Certain pension contributions
- Dependant relative credits
- Age related credits
**2024 rate.
What is my Standard Rate Cut-off Point?
Put simply, your standard rate cut-off point is the amount of income you can earn where you pay tax at the lower rate of 20%. Earnings above this are taxed at 40%. The government set what this limit is per individual annually (€42,000 for 2024). It’s also possible to share some with your spouse / civil partner (up to €9,000) so it’s important to pay attention to what yours are and how they are split.
What are Flat Rate Expenses?
Similar to tax credits, these are money-off your tax bill. Certain jobs qualify for flat rate expenses, such as teachers or nurses. For example, a teacher on full time hours will get tax relief on €518 and will also qualify for money back on their Teaching Council registration fees, or a nurse who supplies and launders their uniform will receive tax relief on €733***.
***2024 rates.
What to check on your Tax Credit Certificate
It’s important to check that all of your jobs are listed on your Tax Credit Certificate, including part-time or temporary work, or payments from pension companies if you are retired. If a job is not listed, Revenue is not aware of it and you could be paying higher tax and USC charges than you need to. In order to view your Tax Credit Certificate, you must be registered for ‘MyAccount’ on Revenue online.
How do I calculate my weekly tax figure?
Your tax will be calculated in four steps:
- Tax is calculated at 20% on your gross taxable pay up to your weekly (or monthly) standard rate cut-off point
- Any balance is taxed at the higher rate of 40%
- The lower and higher tax rate (if applicable) are added together to reach your gross tax
- Your gross tax is then reduced by your tax credits giving you the tax payable
Let’s look at the following example with those four steps: James who earns a nice round €1,000 a week.
- James’ standard rate cut-off point is the normal €42,000 or €807 per week. This €807 is taxable at the standard rate of 20%. So 20% of €807 is €164.
- The higher rate on pay above the standard rate cut-off point comes into play, so €1,000 - €807 = €193. The higher rate at 40% of €193 is €77.
- Add the standard rate and higher rate amounts together: €164 + €77 = €241.
- Tax credits apply. For this example, we’ll say the applicable tax credits are personal tax credits of €1,875 per year and PAYE tax credits of €1,875, which totals €3,750 per year (€72 per week approx.). So €238 - €72 = €166. James pays €166 tax for the week.
The example above is for illustrative purposes only. Each circumstance is different for each individual, in addition a charge for PRSI and Universal Social Charge will be made in most circumstances.
While the above example is straightforward, mistakes do happen and tax can become quite complicated. That’s where our experts can help you. They’re here to make sure you pay no more tax than you have to. In 2023, the average refund our customers received was €1,500*. The majority of these refunds resulted from people not claiming the maximum tax credits that they were entitled to or having the incorrect credits and rate bands allocated to their various sources of income.
For tax advice, or to see if you could be due a refund, call Cornmarket’s Tax Return Service on (01) 408 6266.
*Cornmarket PAYE Tax Return Client statistics, 2023. Cornmarket’s Tax Return Service is not a regulated financial product. Telephone calls may be recorded for quality control and training.