Understanding and filing Irish tax returns

Tax! It’s the cursed word that all adults despise. I certainly do. The very idea of understanding the concept of comprehending, calculating, and paying your taxes seems daunting, but is there a silver lining? Are you paying more tax than you should and more importantly does the taxman owe YOU money?

How does the Irish tax system work?

All income that is directed towards the citizen is liable to tax; Ireland follows various taxes levied on its citizens based on their earnings and a few other facets.

Most people who work in Ireland pay income tax on their earnings through the PAYE system, so unless you’re contracting or self-employed, then you’re probably paying tax through the PAYE system.

Each time you get paid, your payroll will deduct tax from your salary, and you’ll see how much was taken on your payslip. 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 is a range of income tax reliefs available that can reduce the amount of tax that you have to pay.

Pay Related Social Insurance

PRSI is another deduction you’ll see on your payslip each time you’re paid. Pay Related Social Insurance (PRSI) is a contribution to the social insurance fund and most employees over 16 must pay this. You’ll need to pay this whether you work full-time or part-time if you earn €38 or more per week. Your employer will deduct your PRSI and calculate the amount based on your social insurance class.

PRSI is taken at source by your employer and collected by Revenue who, along with the Department of Social Protection, will keep a record of your contributions. Social insurance contributions are divided into different categories known as classes or rates of contribution. The class and rate of contribution you pay is calculated by the nature of your work.

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. 

Chances are if you work in Ireland you’ll need to pay USC and you’ll see it deducted on your payslip each time you’re paid unless your gross income is under 13,000 euros in which case you are exempted from paying the USC
There are a few other payments also exempted check them out here.*

How is my income tax calculated?

Any income you earn is charged at the standard rate of 20% up to a certain amount. This amount is called your standard rate cutoff point. Anything you earn above this amount is charged at a higher rate of tax, which is currently 40%.

So how much tax you pay mainly comes down to how much you earn and your circumstances, e.g. are you single or married, do you look after dependents, and more. You’ll see how much tax you pay on your payslip. 

Standard Cut Off Rate

Your Status 

Income 

Rate 

Single Person without dependents or children  €35,300 20%
One parent Family  €39,300 20%
Married couple/ Civil partners one income  €44,300 20%
Married Couple/Civil partners, two incomes Up to €70,600 (increase limited to the amount of the second income) 20% 
All Categories Earned Income remainder 20%

Tax Credits and Tax Refunds 

Your liability for income tax is also reduced by any tax credits and reliefs you can claim each year. Eligibility often depends on your personal circumstances, Tax credits will reduce the amount of tax you need to pay and are deducted after tax by the amount of credit.

Depending on your personal circumstances, you may be entitled to a number of tax credits.

Each year, Revenue will send a summary of tax credits and standard rate cutoff point to your employer so they can deduct the correct amount of tax. If your circumstances change during the year, Revenue will issue a revised certificate.

This is why it’s really important that you ensure you’re getting the correct amount of credits and tell Revenue if your personal circumstances have changed.

What is overpayment of tax and could I have overpaid on my wages?

Each time you’re paid, your employer deducts tax from your income, which is then paid directly to Revenue who collect taxes on behalf of the Irish government. An overpayment of tax happens when you have paid more tax than you were liable to pay from your salary. The PAYE system also ensures the yearly amounts you pay are collected evenly on each payday over the course of the tax year.

At the end of the financial year, if you have overpaid tax, you are due a tax refund. You must claim a tax refund within 4 years of the end of the year in which the overpayment arose or you will not get a refund.

When might I overpay income tax on employment income?

  You might have paid too much tax if:

  • You got taxable benefits from the Department of Social Protection and the tax paid was calculated incorrectly by your employer, i.e. 
  • Your personal circumstances changed during the year (marital status or if you claimed tax credits and relief you were actually not entitled to)
  • You switched jobs during the year

How to review your tax liability

From 1 January 2020, the way you review your tax for a previous year has changed. The P21 – End of Year Statement has been replaced by a Statement of Liability.

You must complete an income tax return to request your Statement of Liability.

To find out whether you owe tax or are due to a tax refund you can:

  • View a preliminary calculation of your tax liability using your Preliminary End of Year Statement
  • Request a final review of your tax liability using your Statement of Liability

You can get your Statement of Liability for the last 4 years (you can only claim a refund of overpaid tax for the last 4 years). You can currently request a Statement of Liability for the years 2017, 2018, 2019 and 2020.

You can use your Statement of Liability in the same way as the P21, for example, as proof of income to a third party.

Understanding and filing your taxes should not be a burden but rather an easy chore. If you need any further guidance on your taxes or income information, take a look at the Citizens Information Website

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