Working for an Employer
Personal Taxation and getting Started
Income tax, Pay Related Social Insurance (PRSI) and the Income Levy is chargeable on all income earned by individuals in the tax year subject to certain exceptions and exemptions.
An employee's tax, PRSI and the Income Levy is deducted by their employer, through the Pay As You Earn (PAYE) system.
Self-employed individuals (i.e. people carrying on their own business), are responsible for paying their own tax, PRSI and Income Levy through the Self Assessment system.
Working for an Employer under the Pay As You Earn (PAYE) System
- Taking up a new job
- Emergency Tax
- Tax year
- Tax Credit System
- Tax Rates
- How tax is calculated
- Exemption Limits
- Examples of the Tax Credit System
If you are taking up a job as an employee for the first time, you will need to register for tax purposes, and this is easy to do.
Apply for a Personal Public Service (PPS) Number with the Department of Social Protection by:
- Calling in person to any Social Welfare Local Office or Social Welfare Branch Office. A list of these offices can be found in the Government Departments section of the phone directory (Centre pages).
- Completing a Form REG 1 (Application for PPS No.)
- Presenting documentary evidence as requested in the application form to verify your identity.
You will be notified of your PPS Number by the issue of a letter of notification, sent automatically to the address given on the application form, REG 1.
Your PPS Number is an important identifier. You should take care that the number is used only by you. Misuse of your PPS Number may result in an additional tax liability or a loss of entitlement to Social Welfare benefits.
- Notify your employer of your PPS Number once you have received it.
- Complete a Form 12A, which is available from Revenue. You may need to ask your employer for any information that you may need to complete the Form, such as the Employer's Registered Number and Employer's Trading Name. (The Trading Name and the Company name may differ). A Works Number or Clock Card Number may also be required for certain companies.
- Finally, send the completed Form 12A to Revenue.
Following receipt of the Form 12A, the Revenue office will send you a Tax Credit Certificate. At the same time a Tax Credit Certificate will also issue to your employer, so that correct deductions of tax can be made from your salary.
It is essential to complete these three steps in order to avoid being charged "emergency tax".
Emergency Tax is the basis of tax deduction used by an employer when the employer has not received, in respect of the employee, either:
- a tax credit certificate for the current year, or
- a tax credit certificate for a previous year which states that the certificate is valid for subsequent or following years, or
- a form P45 for the current year or previous year or
- The employee has given the employer a completed form P45 indicating that the emergency basis applies, or
- The employee has given the employer a completed P45 without a PPS number and not indicating that the emergency basis applies.
Tax is calculated on the gross pay, after deduction of pension contributions and permanent health contributions, where relevant, which are deducted at source from the employees pay. Different rules apply depending on whether or not the employee provides an employer with his / her PPS Number.
The tables below outline the tax credits and cut off points applicable for the year 2010.
The standard rate of tax is 20%. The higher rate is 41%.
Employee does not provide a PPS Number
|Weekly or Monthly Paid||Standard Rate Cut-Off Point||Tax Credit|
|All Gross Pay||€0.00||€0.00|
Therefore all gross pay is chargeable at 41%
Employee provides a PPS Number
|Weekly Paid||Standard Rate Cut-Off Point||Weekly Tax Credit|
|Gross Pay Week 1 to 4||€700.00||€36.00|
|Gross Pay Week 5 to 8||€700.00||€0.00|
|Gross Pay Week 9||€0.00||€0.00|
|Monthly Paid||Monthly Standard Rate Cut-Off Point||Monthly Tax Credit|
|Gross Pay Month 1||€3,034.00||€153.00|
|Gross Pay Month 2||€3,034.00||€0.00|
|Gross Pay Month 3 onwards||€0.00||€0.00|
The tax year starts on 1st January and ends on 31st December each year.
Who is liable to tax?
An individual who is resident, ordinarily resident and domiciled in Ireland is liable to income tax in respect of his/her total income wherever arising. He/she is entitled, however, to claim certain credits and deductions, For further information see Leaflet IT1, Tax Credits, Reliefs & Rates. Total exemption from income tax can be claimed if income is less than certain limits.
How is Tax Collected and Paid?
Employees pay tax under the Pay As You Earn (PAYE) system which means that tax is deducted by the employer weekly/fortnightly or monthly depending on how frequently you are paid and paid over to Revenue monthly. The PAYE system also applies to directors and pensioners.
An individual is entitled to tax credits depending on personal circumstances e.g. married person's tax credit, employee (PAYE) tax credit etc. These tax credits are used to reduce tax calculated on gross pay. Examples of tax credits available.
What is a Standard Rate Cut-Off Point?
Tax is paid at the standard rate (20%) up to the cut-off point. Any income over the cut-off point is taxed at the higher rate of tax (41%). A Standard Rate Cut-Off Point is the amount of the personal standard rate tax band as adjusted - decreased for any non-PAYE income and increased for any tax reliefs available at the higher rate of tax.
What is a Tax Credit Certificate?
This is a notification that is issued to an employer to advise of the employee's standard rate cut-off point, total amount of tax credits and rate of tax.
Will my employer get information about me from my Revenue Office?
No. All communication between you and the Revenue office is confidential. While you get a detailed notice setting out your tax credits each year, the only information given by the Revenue office to your employer is your annual tax credits figure, the corresponding monthly and weekly amounts and the Standard Rate Cut-Off Point. Your employer does not receive a detailed breakdown of the tax credits you have claimed, or any other information.
The current tax rates are the standard rate of 20% and the higher rate of 41%. For further information see Leaflet IT1, Tax Credits, Reliefs & Rates.
Tax is calculated on gross pay/salary, after deduction of pension contributions and permanent health contributions, where relevant. The rate at which tax is paid depends on the level of income. The tax payable is reduced by tax credits relating to personal circumstances. PRSI is calculated on a weekly basis on gross income less any relevant exemptions. The following steps illustrate the calculations involved:
- Calculate the Income Levy on all income before any deductions,
- Calculate the taxable income,
- Apply tax rate or rates depending on level of income,
- Deduct tax credits depending on personal circumstances,
- Calculate PRSI on the gross income less any PRSI exemptions.
What is Pay Related Social Insurance (PRSI)?
PRSI is a contribution made up of Social Insurance and Health Contribution. The Social Insurance part goes to social insurance funds to pay for social welfare benefits and pensions for the citizens of the country. Please also see the Department of Social Protection for useful information on entitlements etc. The Health Contribution part goes to the Department of Health and Children, to help fund the Health Services. Your Employer deducts these contribution from your wages.
What is the Income Levy?
The income levy, which came into effect on 1 January 2009 is a levy payable on gross income from all sources before any tax reliefs, capital allowances, losses, pension contributions or PRSI. The rates of the Income Levy are as follows:
- 2%: Income up to €75,036 per annum
- 4%: Income between €75,037 and €174,980 per annum
- 6%: Income in excess of €174,980 per annum
Exempt Categories - the levy does not apply to:
- Individuals whose annual income does not exceed €15,028 (€289 per week)
- Holders of Full medical cards
- Social welfare payments
- Exempt income sources listed in Appendix B of the Income Levy - 'Frequently Asked Questions' document (PDF 608KB)
- Individuals aged 65 or over whose annual income does not exceed €20,000 (€385 per week)
- At year end, married couples, one or both of whom are aged 65 or over, whose combined income does not exceed €40,000.
Your Employer deducts the Income Levy from your wages. For more detailed information see Income Levy FAQ (PDF 608KB)
So, Gross Tax less Tax Credits = Tax Payable?
Yes. The tax credit system means that the value of allowances and relief's are worth the same amount to all taxpayers, regardless of whether they pay tax at 20% or 41%. Sample List of Tax Credits.
What is a Form P45?
Form P45 is the form you receive from your employer when you leave an employment. You may need it for the following:
- Claiming a refund of tax during unemployment,
- Claiming Social Welfare Benefits,
- To give to your new employer to avoid paying emergency tax.
Your employer will also give you an Income Levy Certificate along with your P45. This is a statement of your Income Levy deducted in the employment up to your date of leaving. You should retain this certificate for your own records. It should not be given to your new employer. You may require it if you are claiming a refund of any overpayment of Income Levy at the end of the year.
What is a Form P50?
Form P50 is the form used to apply for a refund of tax from Revenue during unemployment.
What is a Form 12?
Form 12 is the annual tax return for PAYE employees. It is a return of Income, Charges and Capital Gains for the year ended 31st December. It is also used to claim for Tax Credits, Allowances and Reliefs for year ended 31st December.
What is a Form P60?
Form P60 is the form issued by an employer to an employee certifying details of an employee's Pay, Tax and PRSI contributions for the tax year. The form must be issued to all employees in employment on 31st December.
Your employer will also give you an End of Year Income Levy Certificate along with your P60. This is a statement of your Income Levy deducted in the employment up to 31 December. You should retain this certificate for your own records. You may require it if you are claiming a refund of any overpayment of Income Levy at the end of the year.
What is a Form Med 1?
Form Med 1 is used to claim tax relief in respect of Health Expenses. You may claim a refund of tax in respect of medical expense paid or incurred by you:
- on your behalf
- on behalf of another person
What is a PAYE Balancing Statement (also known as Form P21)?
A PAYE Balancing Statement, or P21 is a statement issued by Revenue which shows your final tax liability for a particular year.
I think I have overpaid tax last year in Ireland, what should I do?
You should complete a Form 12 and send it to your Revenue office with a Form P60 and supporting documentation in order for a Balancing Statement/Form P21 to be dealt with. Any overpayment due will be refunded to you by Revenue.
What should I do if I take up a second job?
It is important to avoid being put on the emergency basis of tax in a situation where you have a job or pension and you take up a second job. Your first employer will already have instructions from Revenue, to give you all the Tax Credits and Standard Rate Cut-Of Point to which you are entitled. Unless you advise Revenue to issue new certificates, one to each employer, allocating the Tax Credits and Standard Rate Cut-Off Point between the two jobs, as required, your new employer will operate the emergency basis of tax. Therefore it is essential to notify Revenue immediately, in order to get a Tax Credit Certificate issued to each employer.
What should I do if I change jobs?
Whenever an individual leaves a job, they should get a form P45 from their employer as they will need this to give to their new employer. The new employer will operate PAYE in accordance with the details of Tax Credits and Standard Rate Cut-Off Point contained on the form P45 until he or she receives a Tax Credit Certificate from Revenue. If the new employer does not receive a form P45, emergency tax will be deducted.
Should I always receive a Payslip from my Employer?
Under the Payment of Wages Act 1991, an employee must receive a payslip from his/her employer each time a wage has been paid. The payslip shows details of deductions from his/her wages such as tax, PRSI and the Income Levy. For further information contact Department of Enterprise, Trade & Innovation, National Employment Rights Authority, at Lo Call 1890 80 80 90 or www.employmentrights.ie or email firstname.lastname@example.org
Contact for any problems
For any problems in connection with your wages, contact the Wages Section within the company.
If you encounter any of the following problems:
- You have a PPS Number and P45 but employer does not operate on same, or
- You are on the "Emergency" Basis of tax collection for a longer period than is necessary, or
- You are unable to get Form P45 on leaving employment.
Please contact our PAYE Lo Call Service
An individual is exempt from tax for the tax year 2010 where his/her total income is less than the following amounts:
|Personal Circumstances||Tax Year 2010|
|65 years of age or over||€20,000.00|
|65 years of age or over||€40,000.00|
|Additional for Dependent Children|
|1st and 2nd child (each)||€575.00|
|Each subsequent child||€830.00|
|Marginal Relief Tax Rate||40%|
|Personal Circumstances||Tax Year 2010|
|without dependent children||€36,400 @ 20%|
|Balance @ 41%|
|qualifying for One-Parent Family tax credit||€40,400 @ 20%|
|Balance @ 41%|
|(one spouse with income)||€45,400 @ 20%|
|Balance @ 41%|
|(both spouses with income)||€45,400 @ 20%
*(with an increase of 27,400 max.)
|Balance @ 41%|
*Note: The increase in the standard rate tax band is restricted to the lower of €27,400 or the amount of the spouse with the lower income. The increase is not transferable between spouses.
For further information see Leaflet IT 8, Income Tax Exemption & Marginal Relief
Single Individual aged 25 and taxed under PAYE based on an income of €15,000 in 2010.
Tax Liability: €15,000.00 @ 20% = €3,000.00 Gross Tax = €3,000.00 Less: Personal Tax Credit €1,830 PAYE Tax Credit €1,830 = €3,660.00 Net Tax Liability = NIL
Net Annual take home pay is €15,000.00
Tax Credits are used to reduce the tax calculated on gross pay. Tax credits are non-refundable.
Note: There is NO PRSI LIABILITY where an employee earns less than €352 per week and earnings less than €500 per week are EXEMPT from the Health Contribution of 4%.
The Income Levy does not apply where an individuals gross income from all sources for the year does not exceed €15,028.
Single Individual aged 45 and taxed under PAYE based on an income of €40,000 in 2010.
Tax Liability: Single persons rate band €36,400.00 @ 20% = €7,280.00 Balance of income @ 41% €3,600.00 @ 41% = €1,476.00 Gross Tax = €8,756.00 Less: Personal Tax Credit €1,830 PAYE Tax Credit €1,830 = €3,660.00 Tax Liability = €5,096.00
(Assuming Income Earned is in excess of €352 per week)
Income: €40,000.00 Less Income Levy €40,000 x 2% = €800 PRSI Less Annual PRSI Exemption €6,604.00 (€127 x 52) (€40,000 - €6,604.00) €33,396.00 @ 4% = €1,335.84
(Assuming Income Earned is in excess of €500 per week)
Income €40,000 @ 4% = €1,600
Net Annual Take Home Pay is €31,168.16
(€40,000 less tax of €5,096, PRSI of €1,335.84, Health Contribution of €1,600 and Income Levy of €800)