What is PAYE?
Pay As You Earn – your employer deducts the tax you owe directly from your wages, and pays this tax directly to the Revenue Commisioners. A Tax Credit Certificate is issued to every employee at the beginning of each new year, this document informs the individual about their standard rate cut off point and tax credits for the relevant tax year.
What is a standard rate cut off point?
Tax is charged as a percentage of your income and the percentage that you pay depends on the amount you earn. There are two rates at which tax is deducted from an employees salary they are 20% and 40%. 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 40% tax.
Currently the SRCOP for a single person in 2022 is €36,800 this means that a single person will pay 20% tax on the first €34,550 he/she earns in 2022 and any earnings above this amount will be taxed at 40%. The standard rate cut off point for married couples, civil partners, and one parent families will differ and can be found on your tax credit certificate if applicable.
What is a tax credit?
Tax credits reduce the amount of tax that you have to pay and the tax credits you are entitled to will depend on your personal circumstances. They work differently to tax allowances because they are deducted after your tax has been calculated. If your yearly tax credit amounts to €3,300 then this is the amount by which the tax you owe will be reduced.
For example:
John earns €41,000 per year, his yearly Standard Rate Cut Off Point is €40,000, and his yearly Tax Credits are €3,550.
| €40,000 x 20% | = €8,000 |
| €41,000 – €40,000 = €1000 x 40% | = €400 |
| Total Tax Due | = €8,400 |
| Less Tax Credit | =- €3,550 |
| Total Tax Liability | = €4,850 |
Some payments are not subject to PAYE so it is important to reduce your gross yearly earnings by these amounts before making calculations, in the case of John above his gross annual salary was €41,000 however had he made a pension contribution of €2000, then for the purposes of calculating his PAYE liability his gross annual salary would be based on €39,000. This means all of his income will be below the €40,000 threshold and zero tax will be applied at 40%.
The following are some examples of PAYE exempt payments or schemes:
- Pension Contributions
- TaxSaver Commuter Ticket Scheme
- Work Expenses Occurred While On Duty
- Cycle To Work Scheme
- Employing a carer for an incapacitated individual
What is USC?
Universal Social Charge – is a tax that is payable on gross income including notional pay, which exceeds €13,000 per year, once your income is over this limit, you pay the USC on all of your income.
Who is exempt from USC?
- You do not pay the Universal Social Charge if your total income for the year is under €13,000
- All Department of Social Protection payments, including Maternity Benefit and State Pensions
- Social Welfare Payments
- Student Grants and Scholarships
- Salary Sacrifice Schemes such as the TaxSaver Commuter Ticket Scheme and the Cycle To Work Scheme
A full list of exceptions is available from Revenue.
How is it calculated?
| Rate | Income band |
| 0.5% | Up to €12,012 |
| 2% | From €12,012.01 to €22,920 |
| 4.5% | From €22,920.01 to €70,044 |
| 8% | From €70,044.01 to €100,000 |
| 8% | Any PAYE income over €100,000 |
Examples:
A person who is earning €50,000 per year will pay the Universal Social Charge at a rate of 0.5% on the first €12,012 (which comes to €60.06), 2% on the next €10,908 (which comes to €218.16) and 4.5% on the balance of €27,080 (which comes to €1,218.6). This person will pay €1,496.82 per year.
You do not pay the Universal Social Charge if your total income for a year does not exceed €13,000. For example, a person who is earning €13,000 per year will not pay any Universal Social Charge.
What is PRSI?
Pay Related Social Insurance – This is a compulsory payment which must be made by every employee with reckonable earnings above €38 per week. Some people refer to PRSI payments as contributions or stamps (The term stamp refers back to pre 1979 when employers would literally stamp a card for each week of employment, that card was then brought to a Social Welfare Local Office in order to claim social welfare payments.)
An employee will pay PRSI on all earnings above €38 per week, this is known as a contribution and each employee can have up to a maximum of 52 contributions in a year, as there are 52 working weeks in a year. Social insurance contributions are deducted by your employer and collected by the Revenue Commissioners.
Social insurance contributions are divided into different categories, known as classes and the amount of social insurance you pay depends on your earnings and the type of work you do. Most employees in Ireland pay ‘Class A’ PRSI. This class of contribution can entitle you to the full range of social insurance payments that are available from the Department of Social Protection, if you meet the qualifying criteria.
How is it calculated?
If you are earning less than €352 gross per week (before tax is deducted), you will not pay any social insurance. This does not mean that you are not getting a contribution. You are still covered by Class A social insurance. Your employer is paying social insurance on your behalf. Your employer will pay a contribution of 4.25% on your earnings.
If you earn over €352 per week, you pay 4% PRSI on all your earnings, €352 x 4% = €14.08
Your employer pays 8.8% on your earnings up to €352.
Your employer pays 11.05% on your earnings over €352.
For people insured under other classes, the amount of PRSI they pay will vary. The other classes of social insurance are Classes C, D, B, E, H, J, S, K, M, and P. If you are insured under one of these classes, you are paying insurance at a lower rate than Class A contributors, which means that you are not entitled to the full range of social insurance payments. This is because you are paying less towards social insurance than a Class A contributor.
You are not liable for PRSI contributions after the age of 66 – this is the case whether or not you are employed or self-employed. If you do not have enough contributions at age 66, you cannot add to them after that.
How do I benefit from paying PRSI?
- Jobseeker’s Benefit
- Illness Benefit
- Maternity Benefit
- Adoptive Benefit
- Health and Safety Benefit
- Invalidity Pension
- Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) Pension
- Guardian’s Payment (Contributory)
- State Pension (Contributory)
- State Pension (Transition)
- Bereavement Grant
- Treatment Benefit
- Occupational Injuries Benefit
- Carer’s Benefit
It is important that you maintain, as far as possible, your social insurance record. If you leave the workforce, it is important that you keep your social insurance record active. To protect your social insurance record and keep it active, you should contact the Department of Social Protection to check if you can get credited contributions or make voluntary contributions.
Guest Lecturers
In accordance with updated Revenue guidance, with effect from 1 September 2019, all payments to guest lecturers (or other education related contributors) for services performed in Ireland, whether the individual is resident in the Irish State or not, must be paid through the PAYE system and appropriate income tax, USC and PRSI applied.