Simply put, your tax credit certificate is the basis of how your employer is instructed by Revenue to charge tax on your income.
Generally, the information is updated from one year to another with amendments to allow for changes in the budget. If something is not right in one year it often will continue into the next year as Revenue will not know any different.
Below we give 3 examples of how a review of your standard rate band allocation, this is the amount of tax you pay at 20%, can reduce the amount of tax you pay each pay period.
Joe has been working for his employer for several years and has earning more than €50,000 each year. He currently has a rate band of €40,000 allocated to this employment. His employer will charge him 20% tax on this €40,000 and 40% tax on the excess. During the year Joe’s employer agrees to Joe job sharing and he takes up a second employment in a new career. As his income has not ceased with his old employer, Revenue will have no reason to change the Rate bands allocated to this employment, this will mean that all income on the second employment will be taxed at 40%. If Joe’s income while Job Sharing reduces to €25,000, he would be missing out on €15,000 taxed at 20% rate band with his original employer which could be moved to the new employer. This has an impact on net pay of €3,000 (€15,000 @ 20%) over a full year.
If you are jointly assessed, you or your partner may be over-allocated rate bands on your 2023 tax credit certificate, which may remain unused during the year. This will result in you paying more tax than you need to this year, such as in the following examples:
Meet Jane & John
Jane and John have always split everything 50/50, on their 2023 tax credit certificate, their rate bands have been divided equally between them (€40,000 each). In 2023, Jane earns €38,000 and John earns €57,000. They are jointly assessed. Jane therefore has an unused 20% rate band of €2,000 (i.e., €40,000 minus €38,000). This rate band can be allocated to John’s employment, which would save him paying an extra €400 (i.e., €2,000 @ 20%) income tax during 2023.
Our third example is one we see very often in Cornmarket, it applies as much to those jointly assessed as to those singly assessed but in this case we will look at a singly assessed client.
Linda is single and retired last year. As she only had one employment prior to retiring all her rate bands were allocated to that employment. When she retired, her employment ceased and all her rate bands transferred to her new payroll with her employment pension. In 2023 Linda will earn €36,000 from her employment pension, leaving €4,000 in unused rate band. Linda when working invested in an Additional Voluntary Contribution (AVC) which has now been converted into an Approved Retirement Fund (ARF) generating an additional €3,000 per annum in income. When the ARF provider commences payment to Linda, she will be taxed at 40% as Revenue will not know to reallocate her spare rate band. This will result he her paying an extra €600 (€3,000 @ 20%) in tax on her ARF.
Linda may also have the option of taking an extra €1,000 per annum from the ARF to maximise the use of her standard rate band to ensure all her income is paying tax at 20%.
In all the examples above, once a tax return is completed for the year, the overpayment of tax during the year will be refunded. However, a bit of planning and reviewing your tax credit certificate can get the money into your pocket earlier.
You can access your tax credit certificate by logging onto “My Account” with Revenue.
Doing your taxes can be complicated, that’s why you should leave it to the professionals! At Cornmarket, we take the hassle out of tax. Talk to one of our tax advisors today to learn more about the Cornmarket Tax Return Service.
Call us on (01) 420 6757 today.
Cornmarket Group Financial Services Ltd. is a member of Cornmarket Group Financial Services Ltd. is a member of the Irish Life Group Ltd. which is part of the Great-West Lifeco Group of companies. Cornmarket’s Tax Return Service is not a regulated financial product.