Guide to PAYE Tax System (Pay As You Earn):
Whether you’re starting work for the first time or are finally looking into your taxes, understanding PAYE is essential. After all, knowing how the Irish tax system works ensures you can better understand your payslip. Unfortunately, it’s all too easy to overpay on PAYE tax, which is why we’ve decided to help by breaking it down into understandable steps.
Key Takeaways:
- PAYE (Pay As You Earn) is Ireland’s method for automatically deducting Income Tax, USC and PRSI from your wages each pay-day.
- Your employer uses a Revenue Payroll Notification (RPN) that shows your tax credits and the standard-rate band; the deductions reflect these details.
- Tax credits reduce the amount of Income Tax you pay, and they are applied each pay-day under the PAYE system.
- Even though the tax is deducted monthly, you can still claim a refund for up to four years if too much tax was withheld.
- Using PAYE correctly ensures your tax is collected steadily throughout the year instead of as a large lump-sum at the end.
What is PAYE?
PAYE stands for Pay as You Earn and is essentially a tax that gets taken from your wages every time you get paid. Everyone, with the exception of the self-employed, is required to pay PAYE tax.
Before you receive your wages, your employer tallies up how much tax, USC and PRSI you should contribute and deducts it before giving you your pay cheque. They include your contributions on your payslips, so you can double check the amounts taken.
How do I begin PAYE?
You begin paying tax when you start any registered employment. All you need to do is provide your employer with your PPS number and they’ll register you with the tax office. To make sure you’re not emergency taxed, you should make sure they register you as quickly as possible.
How is the tax calculated?
Your income tax liability is calculated at two rates, the standard and higher rates. The standard rate is 20% meaning 20% of your wages is taken if you’re earning less than €44,000 a year.
Basically, if you’re paid monthly and make less than €3,666.67 gross a month or are paid weekly and make less than €846.15 gross a week, 20% of your income is taken in tax. If you make anything over €44,000, 40% of the excess amount is also taken.
Can I reduce my PAYE contributions?
Luckily, you can reduce the amount of tax deducted each pay period. Tax credits can be used to offset some, if not all, of the taxes you need to pay. Your tax credits will be automatically applied each pay period, saving you money in taxes.
What if I‘m charged too much tax?
If you think you have overpaid tax or USC, then you can claim a tax refund for up to four years afterwards.
You may need to update the Revenue Commissioners of changes in your personal circumstances and update any tax credits you’re eligible for, before they process a refund. That’s why an easier solution is to simply fill out our 60 second application form so our experts at Irish Tax Rebates can complete the rest of the process for you!
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