Where does your tax go?

If you’re working, you will be deducted money by the government from every pay cheque you receive. These deductions are taxes, and how much you pay depends on how much you earn.

Types of tax deductions in Ireland

• Pay Related Social Insurance (PRSI)
• Pay As You Earn (PAYE)
• Universal Social Charge (USC)

There are also two rates of tax. A standard rate of tax and a higher rate of tax. These are calculated based on a percentage of your income. The standard rate of tax for a single person is 20%, which is deducted from earnings up to €42,000. Anything you earn over this amount is taxed at the higher rate of tax: 40%.

If you earn less than €13,000 yearly, you are exempt from paying the Universal Social Charge.

All tax deducted from your income is collected by the Revenue Commission, which then uses this money to fund public services and schemes such as:

• Hospital Services
• Emergency Services, such as Gardaí, Fire Brigade, Ambulances
• Residential Care
• Building and maintenance of infrastructure
• Primary and Secondary Education
• Children’s Allowance
• Unemployment Payments

The Citizens Information website provides some case studies in order to help you calculate how much tax you are liable to pay.

Example of pay tax and tax credits

Joan is single and earns €28,000 a year. Joan’s tax credits are listed as:

• Single Person Tax Credit = €1,875
• Employee (PAYE) Tax Credit = €1,875
• Tax credit total = €3,750
• The standard rate cut-off point for a single person is €42,000.
• Because Joan’s income is below the cut-off point, all of her income is taxed at the standard rate, (20%), to give her gross tax.
• 28,000 x 20% = €5,600 gross tax.
• All her tax credits are deducted from the gross tax to give the tax that is payable: €5,600 – €3,750 = €1,850
• Joan is also liable to pay the Universal Social Charge (USC). USC = €425
• PRSI is calculated at 4% of Joan’s pay which = €1,120
• The total amount deducted from her income is: €1,850 (income tax) + €425 (USC) + €1,120 PRSI = €3,395.

Your employer and the Office of the Revenue Commissioners, using your PPS number,  should work out your tax credits and deductions for you. But understanding how much you should be deducted means you will be able to recognise if you are being over or under taxed.

You can also visit the government’s website that provides you with a visual representation of where your money goes.

Need more information, advice or guidance?

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