Today I’m going to talk about what I’ve learned so far about Irish taxes. I’m sure there are plenty of nooks and crannies to explore on the subject, and I’ll provide sources for everything that I’ve found to back them, but I’ll leave readers to interpret those sources by themselves. This is my polite way to say that I won’t be held responsible if the Revenue comes for you 🙂
I’m also talking from the perspective of an expat living in Ireland, so keep that in mind. In other words, this is stuff that I would like someone to have explained to me before moving to Ireland.
The Irish tax system is very progressive. That seems to be a fact. It also seems to work pretty damn well, but this is purely based on my experiences after a few years living and working in Ireland and taking into account that I have other countries where I have lived to compare against.
For the purposes of this post I’ll cover only the Pay As You Earn (PAYE) system, which is the traditional system under which all employees (in the sense that you are working for somebody else, usually a company that pays you a salary) earn income. There are different rules for self employed people.
The bands of tax are very simple. There is a Standard Rate of 20% and a Higher Rate of 40%. That’s it. Only two bands. Seems too good to be true right? It is. As we’ll see further down, matter get more complicated, but nothing compared to my native country I assure you.
How do you know which band you pay tax on? I mentioned earlier that the Irish are very progressive with their tax. The rules then are:
Income up to 33.800 euros -> You pay 20%
All other income above that -> You pay 40%
Some countries put the tax payers on a band according to their absolute income. For example, if you were to make 40.000 euros in income other countries would tax the whole of your income at 40% (assuming the same two bands as the Irish system), making it a not so progressive system.
So far, so good, seems pretty simple.
Consult the official Revenue documentation here.
Universal Social Charge
Universal Social Charge, or USC for short, is one of the most dreaded taxes in Ireland. Why, you might ask? Well, once upon a time, not so long ago, there was no USC. The roar of the Celtic Tiger could be heard throughout the land. But one day the Tiger fell down into a rabbit hole, of all places, and a very big one at that. Once it managed to climb back out of the hole the roar was gone and the USC was on.
How does this tax work? It’s applicable to all income and tax credits don’t have an effect on it. It’s also applicable on other things, such as benefit in kind payments. This tax has been reduced for 2016 and again for 2017. The current rate of tax are the following:
Income up to 12.012 euros -> You pay 0.5%
Income between 12.012 – 18.668 euros -> You pay 2.5%
Income between 18.668 – 70.044 euros -> You pay 5%
Income between 70.044 – 100.000 euros -> You pay 8%
Income above 100.000 -> You pay 8%*
*I believe this value is 10% for self employed. I’m not sure if this changed for 2017.
See more about the USC here.
The Irish system works by using a number of Tax Credits against your income, in order to assess how much money you owe to the Revenue. The Tax Credits are essentially allowances that reduce the amount of income that is taxable. Under the PAYE system all employees are entitled to a Tax Credit worth 1.650 euros.
Another tax credit that all people are entitled is worth another 1.650 euros. From this we can deduct that the majority of employees in Ireland have at least 3.300 euros worth of tax credits.
Examples of other tax credits include dependent care, single parent or health insurance.
See more about tax credits here.
Pay Related Social Insurance
PRSI is not exactly a tax, since it’s not charged by the Revenue. It’s charged by the Irish Welfare system and the goal is to provide Social Welfare to citizens and residents. The rate for employees is 4% on all income subject to PRSI, which typically is the same as all income subject to USC.
Learn more about PRSI here.
Finally, an important note on emergency tax, which typically happens when you start working in Ireland as an expat or change jobs. Let’s imagine you land in Ireland in June and you start working. The Revenue assumes you should be paying tax since January 1st and when they see you haven’t they also assume you’ve been making the amount of your first paycheck since January 1st. This is due to the fact that they haven’t received a P45, which is a statement an employer gives an employee after the contract has finished, for tax purposes. You’re brand new so there’s no P45 in store for you! Relax, there’s a solution, and a simple one at that. Give the Revenue a ring or contact them by email and they’ll update your status. Usually this takes one or two months until solved and when it happens you’ll get all the extra money you might have payed in taxes in the beginning of your employment.
Learn more about emergency tax here.
Find here an Excel spreadsheet to help you simulate the amount of taxes you have to pay.