Understanding Tax in Ireland-Part 1: The Basics What you pay and why

Part 1: Taxation Basics in Ireland – What You Pay and Why

Introduction:

In Ireland, understanding how taxation works is crucial when applying for jobs or calculating your take-home pay. This article breaks down the fundamentals of taxation, covering the various types of taxes and why they are deducted from your salary. Whether you’re single or married, it’s important to know what impacts your net income.

In the last few years, we’ve seen a significant rise in job seekers looking to reskill or change careers entirely, such as accountants transitioning to law or IT professionals moving into SEO and marketing. While following your passion is exciting, the reality of your take-home pay after tax deductions can be a shock for many. Understanding how Irish taxation works is the first step to managing your finances when applying for new jobs.

Breakdown of Taxes:

PAYE (Pay As You Earn):

This is the income tax that’s deducted directly from your salary by your employer. Everyone pays PAYE based on their income level, with two tax rates: 20% on earnings up to €42,000, and 40% on any amount above that.

USC (Universal Social Charge):

Applies to all income over €13,000. The rates are:

• 0.5% for the first €12,012
• 2% on the next €9,283
• 4.5% on income between €21,295 and €70,044
• 8% on income over €70,044.

PRSI (Pay Related Social Insurance):

For most workers, PRSI is charged at 4% on all income.

I worked with a candidate who moved from IT support to an entry-level marketing role. They were aware of the pay cut but were unprepared for the impact of taxes on their reduced salary. Suddenly, managing rent, utilities, and everyday expenses became challenging.

Example Calculation:

Let’s take an example of a gross salary of €50,000. Here’s how your taxes would break down:

• Income Tax:
  • First €42,000 taxed at 20% = €8,400
  • Remaining €8,000 taxed at 40% = €3,200
  • Total Income Tax = €11,600
• USC:
  • 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 €1,956 at 8% = €156.48
  • Total USC = €1,695.91
• PRSI:
  • 4% of €50,000 = €2,000

Total Deductions = €11,600 + €1,695.91 + €2,000 = €15,295.91
Net Income (Take-Home Pay) = €50,000 – €15,295.91 = €34,704.09

Conclusion:

Understanding your taxes is just the beginning. If you’re single and considering a career switch or even taking on a second job, it’s important to know how your personal situation affects what you take home.
In Part 2, we’ll dive into how taxes work specifically for single individuals and explore the challenges of working multiple jobs.

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