Q. I got a pay increase recently and now my income tax has gone up. I find the whole tax thing really confusing, can you help?
Tax is charged as a percentage of your income. The rate of tax you pay depends on your income, so if your salary increased, you may now be getting taxed at a higher rate.
Income is taxed at two rates: the standard rate of tax and the higher rate of tax.
The standard rate of tax applies to the ‘first part’ of your income – up to a certain amount, this is taxed at 20 per cent. The higher rate of tax applies to the ‘rest’ of your income, and this is taxed at 40 per cent.
The amount you can earn before you start to pay the higher rate of tax is known as your standard rate cut-off point.
This cut-off point depends on whether you are a single person (first €42,000 at 20 per cent, and the rest at 40), a lone parent (first €46,000 at 20 per cent and the rest at 40), married/civil partners with one income (first €51,000 at 20 per cent and the rest at 40), married/civil partners with two incomes (up to €84,000, depending on the amount of the second income, and the rest at 40).
Other factors can also affect the cut-off point, for example, if you have another source of income from which tax has not been deducted. By lowering the cut-off point, the other income is taken into account in your employment deductions.
Calculating tax
Before calculating your income tax, subtract the following from your income: pension contributions, payments to a permanent health benefit scheme (to a maximum of 10 per cent of your income), and higher-rate tax reliefs (like nursing home payments).
Tax is then calculated on the 20/40 per cent basis, giving you your gross tax.
Your tax credits are then subtracted from this figure to give you the amount of tax you must pay.
You may be entitled to various tax credits depending on your personal circumstances. You can check your tax credit certificate on Revenue’s MyAccount online service to see what tax credits you get.
Limerick Citizens Information Centre answer your questions in the Limerick Post. If you have a question relating to social welfare issues, tenant or consumer rights, immigration, money, tax, housing, or employment, email [email protected], call 0818 075 780, or drop in to Riverstone House, Henry Street, V93 T28.
