Overtime and bonuses are taxed in the same way an employee’s basic salary is taxed.
Income tax is charged on salaries, cash allowances and non-cash benefits (BIK) provided by and employer to an employee.
Salaries include the basic salary along with any bonuses earned.
Cash allowances include shift allowances, overtime, holiday money, cost of living allowances etc.
Non-cash benefits are more generally referred to as BIK (Benefits-In-Kind). The most common BIK is health insurance.
Once you commence an employment in Ireland, you will be subject to income tax. However, the income tax on employment income is collected through a PAYE (Pay As You Earn) system therefore you will receive your pay after the deduction of the relevant income tax, USC and PRSI.
It is then the obligation of your employer to pay the taxes and social insurances deducted to the Revenue Commissioners.
The tax year in Ireland is the calendar year, 1 January – 31 December.
Split year treatment applies to certain employees in the year of arrival to Ireland or in the year of departure from Ireland. The treatment is only applicable to the individual’s employment income.
In the year of arrival, an individual must not have been resident in Ireland in the previous year and satisfy the Revenue Commissioners that he/she will be resident in Ireland in the following year.
In the year of departure, an individual must satisfy the Revenue Commissioners that he/she is leaving the country and will not be resident in Ireland the following year.
If the individual qualifies for the split year treatment then tax relief is granted on any potential Irish tax liability on employment income earned outside Ireland; before or after leaving Ireland.
For example, if an individual works in Ireland until a certain time in the year and decides to leave; that individual is not liable to Irish income tax on any employment income earned outside Ireland after the date of departure.
Similarly when an individual arrives to Ireland, any income earned in an employment before the point of arrival is disregarded by the Revenue Commissioners and is not taxable in Ireland.
In order to work in Ireland and be taxed at the correct rates, an individual must have a valid Personal Public Service (PPS) number.
If you have just moved to Ireland, you must complete a Form REG1 and present the form in person to the Department of Social Protection. Through this registration, you will obtain your PPS number which should be provided to your employer. You will then need to apply for a Tax Credit Certificate by completing a Form 12A and submitting to the Revenue Commissioners. The individual must complete and sign the 12A form themselves but will require specific details from their employer such as the Employer’s Tax Registration number.
This should be completed as soon as possible to reduce any exposure to Emergency Tax. Emergency tax is dealt with in greater detail further on in this document.
When moving employment, an employee should request a P45 from their previous employer on leaving the job.
On commencing the new employment, the employee should provide the new employer with the P45. Your new employer will register you as a new employee and this will ensure that you will be given the correct tax credits by the Revenue Commissioners.
Income Tax – Income tax is charged on all employment income arising in Ireland. As an employee, income tax is paid via the PAYE (Pay as you Earn) System. The income tax is deducted by your employer through your payslip and the employer then pays the income tax across to the Revenue Commissioners on your behalf.
USC – USC (Universal Social Charge) is a tax payable by employees on gross income. USC is collected through the payroll system like income tax.
PRSI – PRSI (Pay Related Social Insurance) is Ireland’s national insurance. Each employee is assigned a specific class and this determines the rates of PRSI applicable. PRSI is collected through the payroll system like income tax.
Rates of payroll Taxes and Deductions
Standard Rate 20%
Higher Rate 41%
First €10,036 per annum 2%
Next €5,980 per annum 4%
Above €16,016 per annum 7%
PRSI – Standard Rate 4%
Standard Rate Cut-Off Points
Married €41,800 + €23,800 (€65,600 maximum)
Each employee is entitled to an annual Personal Tax Credit of €1,650, a PAYE tax credit of €1,650 and a Standard Rate Cut-Off Point (SRCOP) of €32,800.
A tax credit is used by an employee to reduce their tax liability.
Any income earned below an individual’s SRCOP is taxed at 20%.
Any income that exceeds that SRCOP is taxed at 41%.
For example, an individual (who is not married) earning €40,000 per annum is taxed at 20% on €32,800 with the excess of €7,200 being taxed at 41%. This equates to gross tax liability of €9,512. When the employee’s tax credits are applied (total €3,300) the employee’s actual tax liability is reduced to €6,212 (€9,512 less €3,300).
Emergency Tax must be implemented by an employer when:
- The employer has not received a Tax Credit Certificate for the current year or a Form P45 from the previous employment, or
- The employee has provided a completed P45 indicating that the emergency basis applies, or
- The employee has provided a completed P45 without a PPS number, or does not have a PPS number.
Emergency Tax is calculated on the employee’s gross pay but different rates are applicable depending on the following situations:
- Where a new employee does not provide an employer with his/her PPS number, the employee is subject to the higher rate of tax with no tax credit or SRCOP.
- Where an employer has received a valid PPS number but has not received either a Tax Credit Certificate for the current year or a Form P45 from the previous employment, the normal rules of Emergency Tax apply.
The normal rules are as follows:
If your tax credits change during the year, for whatever reason, the Revenue Commissioners will inform your employer of the updated tax credits. Employer records will be updated as part of the next payroll process.
If an employee wishes to query their tax credits or amend their tax credits, they have to contact the Revenue Commissioners directly on 1890 333 425. Employers cannot deal with the Revenue Commissioners on behalf of an employee.