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Blog Homepage > How to Calculate Your Weekly or Monthly Tax

11/03/15

If you’re not sure how tax is calculated, you may end up inadvertently paying more than you should.

Every year, Revenue issues a tax certificate to every employee. This certificate lets you know the tax credits and standard rate cut-off point applicable to you. Your employer also gets a notification stating the total amount of tax credits and standard rate cut-off point that you, the employee, are entitled to relating to your monthly or weekly wage for that employment.

That’s quite the mouthful and pretty wordy! Unfortunately, when talking tax, explanations get wordy quickly! In this quick guide, we’re going to simplify how your tax is calculated. So first up:

What are Tax Credits?

Tax credits are great. They are like money-off vouchers against your tax bill. The more credits you have, the less tax you will pay and the higher your net salary will be. Your basic credits which will normally automatically apply are your personal credit (worth €1,650) and if you work as an employee a PAYE credit (worth another €1,650). After these two credits, it is up to the individual to claim any more that they may be entitled to (and there are quite a few of these). 

What is my Standard Rate Cut-off Point?

Put simply, your standard rate cut off point (or SRCOP as its known) is the amount of income you are allowed earn where you pay tax at only 20%. Earnings above this are taxed at 40%. The government set what this limit is per individual (typically €33,800 per individual annually) but it is possible to share some with your spouse or claim a higher amount in certain circumstances) so it’s important to pay attention to what yours is and know where you can increase it.

For example, a Public Sector Employee earning €40,000 will pay €9,240 in tax before they apply their tax credits and €5,940 after applying their tax credits.

How do I calculate my weekly tax figure?

Your tax will be calculated in four steps:

  1. Tax is calculated at the standard rate of 20% on your gross taxable pay up to your weekly (or monthly) standard rate cut-off point. Both of these figures will appear on a payslip
  2. Any balance is taxed at the higher rate of 40%
  3. The lower and higher tax rate (if applicable) are added together to reach your gross tax figure
  4. That gross tax figure is then reduced by your tax credits (again this will be written on the payslip). This varies from person-to-person depending on circumstance. The figure you now have is your tax payable in the week or month.

Let’s look at the following example with those four steps:

James who earns a nice round €1,000 a week.

  1. James’ SRCOP is the normal €33,800 or €650 per week. This €650 is taxable at the standard rate of 20%. So 20% of €650 is €130.
  2. The higher rate on pay in excess of the standard rate cut-off point comes into play, so €1,000 - €650 = €350. The higher rate at 40% of €350 is €140.
  3. Add the standard rate and higher rate amounts together: €140 + €130 = €270.
  4. Tax credits apply. For this example, we’ll say the applicable tax credit is €60. So €270 - €60/tax credit = €210. James pays €210 tax for the week.

(The example above is for illustrative purposes only. Each circumstance is different for each individual).

As you can see there are lots of reasons why the amount of tax paid can be wrong, and this is before we allow for the possibility of human error. While the above example is very straightforward, mistakes do happen and tax can become quite complicated. That’s where our experts come in. They are there to ensure you pay no more tax than you must, by availing of all possible reliefs and credits and doing the sums to make sure what you do pay is correct.

 

If you’d like tax advice specific to your circumstances, please call us on (01) 408 6266 or click here for our Tax Return Service.

 

Midas is a tax based service and not a regulated financial product. Cornmarket Retail Trading Ltd. is a wholly-owned subsidiary of Cornmarket Group Financial Services Ltd. Telephone calls may be recorded for quality control and training purposes.