Know your rights
In an extract from Know Your Rights, Andrew McCann talks you through the tax system
A SINGLE PERSON’S WEEKLY TAX
I am a single person. If I earn €38,000.00 per year as a single person, how do I calculate my weekly tax?
There are a number of steps to follow in assessing your tax due:
Step 1
We must assess the annual tax credits that are due to you in your situation. These are as follows:
Single Person’s Tax Credits €1,830.00
Employee Credit (PAYE Credit) €1,830.00
Total €3,660.00
Therefore your weekly tax credits are €70.38 (€3,660.00 divided by 52 weeks).
Step 2
After that, we figure out if part of your weekly earnings fall into the higher rate band of 41 per cent. As a single person, you are allowed to earn €35,400.00 per year at the lower band of 20 per cent. In your situation, you will pay 20 per cent on €35,400.00 and 41 per cent on the €2,600.00 you’re earning over and above this limit.
Step 3
We then divide your earnings per year by your payment method (weekly or monthly). Your gross (pre-tax) earnings per week (€38,000 divided by 52 weeks) amount to €730.77. In this case, we need to separate the amount to be taxed in the 20 per cent band (€35,400.00 annually) from the amount in the 41 per cent band (€2,600.00 annually).
€35,400.00 / 52 weeks €1,830.00
€2,600.00 / 52 weeks €1,830.00
Step 4
Multiply your weekly gross earnings in the lower band (up to €680.77) by 20 per cent and the balance in the higher band - in this case €50.00 - by 41 per cent to get your total tax due each week.
€680.77 x 20% €136.15
€50.00 x 41% €1,830.00
Total tax due €156.65
Step 5
Now, take away any weekly tax credits (which we looked at in step 1) due to you. Therefore, your tax due (€156.65) minus your tax credits (€70.38) leaves your tax payable (your weekly tax bill) at €86.27 per week, excluding PRSI and other deductions.
SINGLE PARENTS RAISING CHILDREN
I am a single father. My ex-partner raises our child. Our child stays occasionally with me in my flat. Can I receive any additional tax credits for the cost of this? I earn €40,000.00 per year and am paid monthly. How will my tax liability work out?
Fathers and mothers of children who don’t have sole custody of their children can apply for the One-Parent Family Tax Credits by completing and forwarding the OP1 form (available from www.revenue.ie) to their local tax office. For you to get it, the child must reside with you for part of the year. Couples living together as man and wife cannot claim this allowance, and neither can couples living together who maintain or support children from previous relationships. Therefore, to apply for the allowance you must be parenting alone. The child may be a child of your own, a stepchild, or a child of whom you have custody and maintain at your own expense.
There are a number of steps to follow to work out your tax due:
Step 1
We must assess tax credits due to you in your situation. These are as follows:
Single Person’s Tax Credits €1,830.00
One-Parent Family Allowance €1,830.00
Employee Credit (PAYE Credit) €1,830.00
Total €5,490.00
Therefore, your monthly tax credits (€5,490.00 divided by 12 months) work out at €457.50.
Step 2
Now, we figure out if any part of your monthly earnings falls into the higher rate band of 41 per cent. As a single parent, you are allowed to earn up to €39,400.00 per year at the lower rate of 20 per cent. In your situation, €39,400.00 is taxed at 20 per cent and the balance of €600.00 is taxed at 41 per cent.
Step 3
We then work out your gross earnings per month: €40,000.00 divided by 12 months leaves us with a gross pay of €3,333.33.
Of this, €3,283.33 (€39,400.00 divided by 12 months) is taxed at 20 per cent and the balance of €50.00 (€600.00 divided by 12 months) is taxed at 41 per cent.
€3,283.33 x 20% €656.67
€50.00 x 41% €20.50
Total tax due €677.17
Step 4
Multiply €3,283.33 of your monthly gross earnings by 20 per cent and the balance of €50.00 by 41 per cent to get your total tax due.
Step 5
Now, take away any monthly tax credits due to you in your situation. Your tax due (€677.17) minus tax credits (€457.50) leaves tax payable of €219.67 per month, excluding PRSI and other deductions.
TAX CREDITS FOR CARERS
Do I, as a stay-at-home married person, receive any extra tax credits for raising our children?
A Home Carer’s Tax Credit is granted when a married couple are assessed jointly (on one income) and where a home carer cares for a dependent person. Married couples on two incomes that receive increased tax band allowances cannot receive the Home Carer’s Tax Credit. A dependent person may be a child for whom social welfare Child Benefit is paid, a person aged 65 or over, or a person who is permanently mentally or physically incapacitated. The dependent person must normally live with the married couple, but this is not exclusive. A dependent person can be cared for outside the home if they’re a relative living next door, on the same property or within two kilometers of the home carer. However, there must be at least a direct communication link with where the dependant lives, such as a telephone or alarm system.
TAX FOR SINGLE-INCOME FAMILIES
I am married, with one income coming into the house. We have one child, and my wife stays at home to mind the child full time. I earn €48,000.00 per year, paid monthly. What is my tax liability per month?
There are a number of steps to follow for assessing your tax due:
Step 1
We assess the tax credits due to you in your situation. These are as follows:
Therefore your monthly tax credits (€6,390.00 divided by 12 months) amount to €532.50.
Married Person’s Tax Credits €3,660.00
Employee Credit (PAYE Credit) €1,830.00
Home Carer’s Credit €900.00
Total €6,390.00
Step 2
Now, we figure out if any part of your monthly pay is taxed in the higher rate band of 41 per cent. As a married person on a single income, you are allowed to earn €44,400.00 per year at the lower band of 20 per cent. Therefore, in your situation, you will pay 20 per cent on €44,400.00 and 41 per cent on the balance of €3,600.00.
Step 3
We then divide your gross earnings per year by your payment method - in your case, monthly. Your gross earnings per month work out at €4,000.00. In this case, we need to separate the amount to be taxed in the 20 per cent band (€44,400.00) and the amount in the 41 per cent band (€3,600.00).
€44,400.00 / 12 months €3,660.00
€3600.00 / 12 months €300.00
Step 4
Multiply your monthly gross earnings in the lower band (up to €44,400.00) by 20 per cent and the balance in the higher band - in this case €3,600.00 - by 41 per cent to get your total tax due.
€3,700.00 x 20 % €740.00
€300.00 x 41% €123.00
Total tax due €863.00
Step 5
Now, take away any monthly tax credits due to you. Your total tax due (€863.00) minus your tax credits (€532.50) leaves the tax you pay at €330.50 per month, excluding PRSI and other deductions.
SEPARATE AND JOINT ASSESSMENT OF COUPLES
My husband earns €48,000.00 and I work part-time earning €25,000.00 per year (paid monthly). Would we be better off being assessed separately or jointly? How can you compare?
Firstly, we should assess your tax liability separately. Then, we’ll assess it jointly,
and consider any tax savings.
Separately Assessed -
Step 1
We must assess tax credits due to you in your situation. These are as follows:
HUSBAND WIFE
Single Person’s Tax Credits €1,830.00 €1,830.00
Employee Credit (PAYE Credit) €1,830.00 €1,830.00
Total €3,660.00 €3,660.00
Your monthly tax credits (€3,660.00 divided by 12 months) work out at €305.00 each.
Step 2
We must figure out if any part of your monthly allowance is in the higher rate band of 41 per cent. As ‘single’ people (on separate incomes), you are allowed to earn €35,400.00 per year at the lower band of 20 per cent. So in your situation, your husband will pay 20 per cent on €35,400.00 and 41 per cent on the balance of €12,600.00.You will only pay 20 per cent on €25,000.00, as your total earnings are below the threshold of €35,400.00 per year.
Step 3
We then divide your gross earnings per year by your payment method, separating the amount taxed at the lower rate of 20 per cent from the balance
taxed at the higher, 41 per cent, rate. Your gross earnings per month are as follows:
HUSBAND WIFE
Monthly salary €4,000.00 per month €4,000.00 per month (gross) (€48,000.00 / 12) (€25,000.00 / 12)
Taxed at 20% €2,950.00 €2,083.33 (€35,400.00 / 12) (€25,000.00 / 12)
Taxed at 41% €1,050.00 (€12.600.00 / 12)
Step 4
Multiply the monthly gross earnings in the lower band (up to €2,950.00) by 20 per cent and the balance in the higher band (in this case €1,050.00) by 41 per cent to get your total tax due.
HUSBAND WIFE
20% band €590.00 per month €416.67 per month (€2,950.00 x 20%) (€2,083.33 x 20%)
42% band €430.50 per month (€1,050.00 x 41%)
Total tax due €1,020.50 €416.67
Now, take away any monthly tax credits due to you in your situation.
HUSBAND WIFE
Tax due €1,020.50 €416.676
Tax Credits €305.00 €305.00 (€3,660.00 / 12 months) (€3,660.00 / 12 months)
Total tax due €715.50 €111.67
Between the pair of you, the total tax payable is €827.17 per month, excluding PRSI and other deductions.
Jointly Assessed –
Step 1
Here are the yearly joint tax credits due to you when you’re jointly assessed. Therefore your monthly tax credits (combined) are again €610.00.
Married Person’s Tax Credit (2 Incomes) €3,660.00
Employee Credit (PAYE Credit) €3,660.00 (1,830.00 x 2)
Total €7,320.00
Step 2
Figure out if any part of your monthly allowance is in the higher rate band of 41 per cent. As a married couple on two incomes, you are allowed to earn a total of €70,800.00 per year at the lower band of 20 per cent.
Within the joint assessment, up to €26,400.00 in tax allowances can be transferred between yourself and your husband. This means that the maximum salary that can be taxed on the 20 per cent rate is €44,400.00 - just as with single income families. So in your situation, your husband will pay 20 per cent on €44,400.00, while you will pay 20 per cent on the €25,000.00.Your husband will pay 41 per cent on the balance of the combined incomes, which is €2,200.00.
Step 3
We then divide your gross earnings per year by your payment method - separating the amount to be taxed at the lower rate, and the balance to be taxed at the higher rate.
HUSBAND WIFE
Monthly salary €4,000.00 per month €2,083.33 per month (gross) (€48,000.00 / 12) (€25,000.00 / 12)
Taxed at 20% €3,700.00 €2,083.33 (€44,400.00 / 12) (€25,000.00 / 12)
Taxed at 41% €300.00 (€3.600.00 / 12)
Step 4
Multiply the monthly gross earnings in the lower band (up to €3,700.00 and €2,083.33) by 20 per cent, and the balance in the higher band (in this case €2,200.00) by 41 per cent to get your total tax due.
HUSBAND WIFE
20% band €740.00 per month €416.67 per month (€3,700.00 x 20%) (€2,083.33 x 20%)
42% band €123.00 per month (€300.00 x 41%)
Total tax due €863.00 €416.67
Step 5
Now, take away any monthly tax credits due to you in your situation.
HUSBAND WIFE
Tax due €863.00 €416.67
Tax credit €457,50 €152.50
Total €405.50 €264.17
The total tax payable for both of you is €669.67 per month, excluding PRSI and other deductions.
Therefore, if you’re assessed jointly, you will only pay €669.67 per month, compared to €827.17 per month assessed separately. This way, you and your husband can make a tax saving of €157.50 per month - that’s €1,890.00 in a full year. Remember that if you’re in receipt of State Pensions paid separately to each party you and your spouse are assessed as a two income household.
Published in: You & Your Money, May 2008