Understanding Tax in Ireland-Part 2, Taxation for Individual Taxpayers in Ireland

Part 2: Taxation for Individual Taxpayers in Ireland

Introduction:

In recent years, more and more unmarried individuals (referred to as individual taxpayers) have taken on second jobs in Ireland, often out of necessity rather than choice. Rising costs of living, housing shortages, and stagnant wages have left many workers seeking additional sources of income just to stay afloat. While reskilling or working extra hours may seem like the perfect solution, the reality of Ireland’s tax system can make these efforts feel less rewarding than anticipated.

One of the key considerations for individual taxpayers is understanding how additional income is taxed. This part of the series will break down the specific tax liabilities for unmarried individuals, focusing on how second jobs are taxed and how they affect your overall take-home pay.

Reasons for Seeking Second Jobs:

Many individual taxpayers are taking on second jobs to manage their living expenses, particularly as rent and daily costs in Ireland continue to rise. As discussed in earlier articles, the cost of living has skyrocketed, and average rent in Dublin can easily take up more than half of an individual’s salary. We’ve also seen people taking on extra work to build savings or finance career changes, but in many cases, the additional income doesn’t provide the financial relief they expect.

A recent example of a candidate highlights this reality: “A candidate I worked with was earning €35,000 from a full-time job but was struggling to save due to rent, bills, and daily expenses. They took on a part-time weekend job to boost their income, hoping to make a noticeable difference. However, after taxes were applied, they realised their take-home pay from the second job was far lower than anticipated, and their overall financial situation hadn’t improved as much as they’d hoped.”

This example illustrates why it’s so important to understand how tax rates affect earnings, especially when working multiple jobs.

Tax Breakdown for Unmarried Individuals:

For individual taxpayers, there are two major tax credits available:

• Single Person’s Tax Credit: €1,775
• PAYE Tax Credit: €1,775

These credits reduce your overall tax bill, but any income over the standard rate threshold (€42,000) is taxed at the higher rate of 40%. The challenge for many single workers, especially those with two jobs, is that while they see a larger gross income, their take-home pay may not increase as much as expected due to this higher tax rate.

Universal Social Charge (USC) Breakdown:

On top of PAYE, the Universal Social Charge (USC) is applied to gross income, and for unmarried individuals earning over €13,000, the rates are as follows:

• First €12,012 at 0.5% = €60.06
• Next €9,283 at 2% = €185.66
• Next €28,749 at 4.5% = €1,293.71
• Remaining income over €50,044 (if applicable) at 8%.

The USC, although smaller than income tax, is a crucial factor that significantly reduces take-home pay, particularly for those with additional jobs.

PRSI (Pay Related Social Insurance):

PRSI is charged at 4% on all income for most workers. This is another deduction that affects your overall take-home pay, and it’s important to include it when calculating your final earnings.

Example Calculation: Unmarried Individual Earning €40,000

Let’s break down the tax calculations for an individual taxpayer earning €40,000 annually.

1. Income Tax:
   • First €40,000 taxed at 20% = €8,000
   • Subtract tax credits (€1,775 + €1,775) = €4,450 (total income tax after credits)
2. Universal Social Charge (USC):
   • First €12,012 taxed at 0.5% = €60.06
   • Next €9,283 taxed at 2% = €185.66
   • Remaining €18,705 taxed at 4.5% = €841.73
   • Total USC = €60.06 + €185.66 + €841.73 = €1,087.45
3. PRSI:
   • 4% of €40,000 = €1,600

Total Deductions = €4,450 (Income Tax after credits) + €1,087.45 (USC) + €1,600 (PRSI) = €7,137.45
Net Income = €40,000 – €7,137.45 = €32,862.55

Second Job Tax Example: Unmarried Individual Earning €40,000 (First Job) and €12,000 (Second Job)

If this same individual takes on a second job, earning an additional €12,000 annually, they would enter the higher tax bracket for their combined earnings. Here’s how the tax breaks down:

1. Income Tax:
   • First €42,000 taxed at 20% = €8,400
   • Remaining €10,000 taxed at 40% = €4,000
   • Subtract tax credits (€1,775 + €1,775) = €8,850 (total income tax after credits)
2. USC:
   • First €12,012 taxed at 0.5% = €60.06
   • Next €9,283 taxed at 2% = €185.66
   • Next €28,749 taxed at 4.5% = €1,293.71
   • Remaining €2,956 taxed at 8% = €236.48
   • Total USC = €60.06 + €185.66 + €1,293.71 + €236.48 = €1,775.91
3. PRSI:
   • 4% of €52,000 = €2,080

Total Deductions = €8,850 (Income Tax) + €1,775.91 (USC) + €2,080 (PRSI) = €12,705.91
Net Income = €52,000 – €12,705.91 = €39,294.09

Despite earning an additional €12,000, the unmarried individual only takes home an additional €6,431.54 after tax deductions—a clear example of how second jobs are taxed at a much higher rate.

Conclusion:

For those in married or civil partnerships, the tax system offers ways to reduce the burden through joint assessment and combining income bands.
In Part 3, we’ll explore how couples can manage their tax liabilities, especially when one or both partners are considering career changes or additional jobs.

---