Guide to income tax brackets in Ireland

The deadline for submitting income tax returns is looming, but what are the income tax brackets in Ireland and how can you ensure you only pay what you are supposed to? Our guide shows you how.

It was Benjamin Franklin, one of the founding fathers of the USA, who uttered the line: “In this world nothing can be said to be certain except death and taxes.” It is a truism that is as relevant today as it was then; taxes must be paid – but it is important to ensure that you only pay what you owe.

In this article, we discuss what a tax bracket is, who needs to be pay what and how this should help you when filing your income tax return.

2022 tax deadlines

The deadline for filing your income tax return – and paying it – for income earned in 2021 is October 31.

Those whose tax is paid at source through PAYE must submit a Form 12, but if their income through non-PAYE means is more than €5,000 then they have to register for the Self Assessment Income Tax system and file a Form 11.

Meanwhile, the ROS extended income tax return and payment for 2021 income deadline is November 16. This is for those who file a Form 11 for their 2021 income tax and make payment through ROS for their 2021 tax due and preliminary tax for 2022. Note that this only applies for people who file and pay through ROS – if it is only one, the extension is not applicable and it needs to be paid by the end of October. If this doesn’t happen, the taxpayer is liable for a late filing surcharge.

Finally, for those who want to top up their pension contributions for 2021 to take advantage of income tax relief, the Form 11 needs to be filed and paid online by November 9.

Tax brackets in Ireland

In simple terms, you pay a portion of your earnings in tax and that percentage is decided by how much you earn.

For 2022, a single person who earns up to €36,800 pays 20% tax. If their earnings exceed that, they pay the balance above €36,800 at 40%. The 20% tax band has been increased by €1,500 on the amount it was levied at in the years 2019-2021.

For example, a single person who earns €40,000 will pay this amount of tax: 20% of €36,800 = €7,360 + 40% of €3,200 = €1,280. Total tax paid: €8,640.

However, if the single person is also a parent, their 20% tax rate rises to €40,800, with the balance paid at 40%.

Meanwhile, a married couple/civil partners with one income will pay tax at 20% up to €45,800 in earnings, with the balance charged at 40%. Again, the 20% rate is €1,500 higher than it was in the years 2019-2021.

Finally, a married couple/civil partners with two incomes can earn up to €73,600 before they must pay tax at 40%. This is an increase of €3,000 on the limit in 2019-2021.

Nevertheless, the rules for married couples/civil partners with two incomes are slightly more complex than this. The 20% rate is calculated thus: one part of the couple can earn up to €45,800 at the 20% tax rate, with the balance taxed at 40%. Meanwhile, the income of the other partner is tax at 20% up to €27,800 or the amount of the spouse/partner with the smaller income. The standard rate is not transferable between spouses/partners.

For example, if a couple earn €80,000 per year between them, with one earning €50,000 and the other €30,000, they would be taxed like this: the higher earner will pay tax at 20% on €45,800 of their earnings (€9,160) and €4,200 at 40% (€1,680). The lower earner will pay 20% tax on their first €27,800 of earnings (€5,560) and €2,200 at 40% (€880). This means their total tax payable will be €17,280.

Tax credits and relief

But there are ways that your tax can be reduced. Certain people can claim tax credits or relief. These are a sum of money that are taken from your tax bill after it has been calculated – which means it is worth the same to everyone who claims it.

Tax credits or relief can be claimed depending on personal circumstances. There are a wide range of tax credits and reliefs that can be claimed. This includes people who work at home, who can claim relief on the additional costs that this incurs in terms of electricity use etc. Relief can also be claimed for certain medical expenses, as well as private health and long-term care insurance.

Unemployed people who start their own business can claim relief from income tax for two years under the Start Your Own Business Scheme.

Tax allowances

In addition, certain tax allowances can be claimed that can lessen your tax burden. These allowances are taken from your earnings before tax is applied, which means how much it reduces your tax bill by is contingent on which income tax bracket you fall into.

Tax allowances available include for the cost of employing a carer for yourself or another family member (i.e. spouse/civil partner, child or relative). There is also relief available on pension contributions, although this does depend on the type of pension – your financial adviser can tell you more about this – and things like using a trained guide dog if you are blind or visually impaired.

Calculating your tax

This is vitally important and must be done with care. When calculating how much income tax you must pay, there are various things you have to consider.

Firstly, there are items than can be deducted from your earnings before you begin to work out how much tax you need to pay. This includes pension scheme contributions, any tax allowances you are eligible for, and expenses incurred that were needed for you to be able to carry out your role and contributions to a permanent health benefit scheme (up to 10% of your income).

Once those have been deducted, your pay, up to the cut-off points discussed above, is taxed at 20%. If you earn any more above the 20% cut-off, it is taxed at 40%. Then, if you have any tax credits, they are then subtracted from your tax bill.

The cut-off point for paying tax at 20% can vary, depending on your situation. Some tax allowances can raise the 20% cut off, while other factors – such as income outside of your main job from which tax has not been taken – can lower the level.