Irish PAYE taxes

05 August 2013
Having written about the UK and New Zealand income tax systems, I decided to see what tax rates were like on the other side of the Irish sea. Ireland is known as a low-tax country, although that is due to its low corporation taxes rather than taxation in general. In summary Irish PAYE taxes such as Income tax have similar marginal rates to the UK, but the higher 41% rate kicks in at a much lower level.

Income tax

Unlike the UK which has a personal allowance exempt from tax, Ireland has tax credits that are applied afterwards. Income tax 20% on gross income upto the standard rate cut-off point, and 41% above it. Once the tax liability is calculated, tax credits are subtracted from this figure, and this is how much income tax you end up paying. The cut-off point and tax credit varies depending in marital status and family. For a single person on PAYE, the cut-off point is €32,800 and tax credits come to €33,000. There are other possible breaks such as relief on private rent (a variant of housing benefit).

Pay-Related Social Insurance

PRSI (Pay-Related Social Insurance) is the Irish equivalent on National Insurance, and it operates in much the same way with employer and employee contributions. There are a total of nine different classes, of which most are irrelevant to the private sector. Classes B-D are grandfathered civil servants employed prior to 1995, Class H is military, Class J is mainly low-paid and some secondary jobs, Classes K & M are public office holders, and Class S is self-employed. Anyone employed in the private sector and is both earning more than €38 per week and is under 66 will almost certainly fall under Class A.

For employees, Class A PRSI contributions only apply if you earn above €352/week, but if they do apply, it is a flat 4% of all income. For employer contributions it is 4.25% of income upto €356 (due to return to 8.5% in 2014) and 10.75% above €356. There used to be an allowance, but this was abolished in January.

Universal Social Charge

The USC (Universal Social Charge) applies if you save a gross salary above €10,036, but if it does apply, any salary below this limit is also taxed. It is 2% for income below €10,036, 4% for €10,036-€16,016, and 7% for income above €16,016. The USC pays for health services, and those who hold a means-tested full medical card only pay 4% on income above €16,016.

Worked example

I am assuming a single person working as a PAYE employee who has no children, and is on €30,160 per-annum (€580 per week).

Income tax: €2,732: 20% of all income (€6,032), minus single person (€1,650) and Employee PAYE (€1,650) tax credits.
Employer PRSE: €2,050.10: 4.25% on first €356, and 10.75% on remaining €226.
Employee PRSE: €1,206.40: €580/week is in sub-band A1, so 4% applies to all income
USC: €1430: €200.72 (2% band) + €239.20 (4% band) + €990.08 (7% band)

That works out at €24,799.60 nett at a cost of €32,210.10 to your employer, which means a tax take of 23% from the perspective of the employer and 17% from the perspective of the employee. For a UK equivalent salary of £26,200 the rates are 21% and 28% respectively. However one problem compared to the UK is that the 41% higher tax rate kicks in at a much lower level compared to the UK's 40% higher level, so for salaries above &eur;40,000 (circa £35,000 at current exchange rates) the UK's tax regime is lower in percentage terms.

Remarks

There is a notable bias in the system towards married couples, which increases the higher rate tax threshold by €9,000, but this bias also comes with the assumption of asymmetric salaries as the threshold for the second partner is lowered. Since tax credits are non-transferable, two working partners earning €32,800 each would be hit for 41% on €9,000, whereas if they were on €23,800 & €41,800 all their income would be at the standard 20% rate.