Most employees in Ireland pay work taxes through the PAYE (Pay As You Earn) system. This means that your employer deducts the tax you owe directly from your salary, and pays this tax directly to the Revenue Commisioners. The Revenue Commissioners collect taxes from citizens on behalf of the Irish Government.
It is important to ensure that your tax is dealt with properly from the start and that your new employer deducts the right amount of tax from your pay. To ensure that this happens, you will need to do two things:
- Give your employer your PPS Number. This number is your unique personal identification number for public services in Ireland. Your employer will then let your tax office know that you have started work and that they are your employers.
- Apply for a certificate of tax credits. You will need to complete an application form to do this. It is called Form 12A Application for a Certificate of Tax Credits and Standard Rate Cut-Off Point – see ‘How to apply’ below.
To ensure that your employer and the tax office have time to have everything sorted out before your first pay-day, it is advisable to do all this as soon as you accept an offer of a job (even for part-time or holiday employment). Your own personal circumstances dictate the amount of tax credits you are entitled to. The tax office will then send you a detailed statement of your tax credits. Your employer will also be notified of your tax credits.
Tax credits reduce the amount of income tax that you have to pay. Your gross tax is calculated depending on your income. Tax credits are then deducted from the gross tax to give the amount of tax that you have to pay. Tax credits consist of various credits and reliefs which you may be able to claim, depending on your circumstances. Every individual can claim a personal tax credit and can also claim relief for items such as private health insurance premiums and mortgage interest. Details of all the main tax allowances and reliefs (including the amount due for the current year) are given on the explanatory leaflet issued to you each year from the Revenue Commissioners with your certificate of tax credits. This information is also available from your tax office or online from the website of the Revenue Commissioners.
What do I have to pay tax on?
Tax is payable on earnings of all kinds that result from your employment (including for example, bonuses, overtime, non-cash pay or benefit-in-kind such as the use of company car, tips, Christmas boxes etc.). You do not pay tax on: scholarship income, interest from savings certificates, savings bonds and national instalment savings schemes with An Post, and payments to approved pension schemes.
Pay that you receive through working extra hours (overtime), bonuses etc., is included as part of your taxable pay for that week or month. You do not get any additional tax-free allowances against these additional earnings.
If your employer has not received either a:
- Certificate of tax credits from the tax office or,
- Form P45 (parts 2 and 3) from you, in respect of your previous employment,
your employer will be obliged to deduct tax on an emergency basis when paying your wages or salary. This means that they will give you a temporary tax credit for the first month of employment but tax deductions are increased progressively from the second month onwards. The effect of emergency basis is that after 4 weeks no tax credits are given, and tax is paid at the higher rate from week 9, regardless of the level of pay. It makes sense therefore to avoid the emergency basis by following the simple steps outlined earlier when you start work in Ireland. Details of emergency tax rates are in the Revenue leaflet PAYE Notice to Employers.
Income tax bands
Income tax bands will determine the rate of tax you pay on your income or salary. In the tax year 2008 for example, a single person will pay 20% tax on income up to €35,400 and 41% on any balance. More detailed information regarding tax credits and reliefs is available from your local tax office.
Revenue Job Assist is a special tax allowance for people who have been unemployed for one year or more and who start a job. The allowance in the first year of employment is €3,810 plus €1,270 for each child, and is available for a total of three years, (though at a lower rate in years two and three).
Starting a second job
If you choose to take on a second job, your first employer will already have instructions from the tax office to give you all the tax credits to which you are entitled against your pay. Unless you advise your District Tax Office to issue new certificates, one to each employer, dividing the tax credits and standard rate cut-off point between the two jobs, your new employer (that is, in your second job) will operate your pay on an emergency tax basis.
This will mean that you would get more tax credits than you are entitled to, resulting in an underpayment of tax, which will have to be paid at the end of the tax year.
How to apply
If your employer does not have the application form 12A (Application for a Certificate of Tax Credits and Standard Rate Cut-Off Point) you can get one from the Lo-call PAYE enquiry service. Ask your employer which tax office your completed form should be sent to.