Income tax for individuals is an essential component of the Irish tax system, and one of the principal sources of the Irish state budget. If you are living or planning to live and work in Ireland, understanding Irish income tax is a must.
Ireland operates a self-assessment tax system, which means individuals are responsible for determining their tax liability and filing their tax returns. In this blog post, we’ll discuss who should register for Personal income tax, current tax rate bands and opportunities to claim tax exemptions in Ireland.
Whether you’re an employee, a self-employed professional, or a business owner, understanding the Irish tax system is crucial. So, let’s dive in and learn more about income tax in Ireland.
Who Should Register for Income Tax in Ireland
Income tax payment is based on a self-assessment system which means you’re responsible for calculating your own tax liability and paying it directly to the Revenue Commissioners. Individuals who fall under the following categories are required to register for the self-assessment system:
- Sole traders;
- Individuals who profit from share options or share incentives;
- Individuals whose main or only source of income is rental income, investment income, foreign income including foreign pensions, and maintenance payment.
You don’t have to register for self-assessment if you only have PAYE (pay-as-you-earn) income. It means that every time your salary is paid, your employer deducts Income Tax (IT), Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) and pays the amount deducted to the Revenue.
*Please note that companies are obliged to pay tax on their income which is called Corporation Tax. If you’re an owner or employee of a company that pays corporation tax, it does not make you exempt from Personal income tax.
Irish Income Tax Thresholds and Rates
Only individuals whose income (passive, active, or joint) reaches certain thresholds are chargeable for income tax in Ireland. Depending on the income size, it is calculated at a progressive rate and is due at the rates 20% and 40% for 2023.
The income tax rate bands are subject to change and depend on a number of personal circumstances, namely marital status and dependent children. The point at which tax increases from 20% to 40% are:
- Single, widowed or surviving civil partner increased from €36,800 in 2022 to €40,000 in 2023;
- Single, widowed or surviving civil partners, qualifying for the Single Person Child Carer
- Credit increased from €40,800 in 2022 to €44,000 in 2023;
- Married couples or civil partners (one income) increased from €45,800 in 2022 to €49,000 in 2023;
- Married couples or civil partners (two incomes) increased from €45,800 in 2022 to €49,000 (with an increase of €31,000 max) in 2023;
Income tax payment is accompanied by the submission of income tax return.
*All types of income fall under the category of “active” or either “passive” income. Active income is money you make from actively participating in work, whether you are salaried or paid hourly, employed or run your own business, earn commissions, bonuses or tips, and so on.
Passive income is money received without active involvement. These are monies you earn in the form of dividends, rental activity, cash-back from credit or debit card, affiliate marketing and ads, and licensing intellectual property.
Exemptions from Personal Income Tax in Ireland
Under certain personal circumstances such as marital status age, and the number of dependent children, individuals in Ireland may claim income tax exemptions. There are certain conditions that allow you to claim PIT relief:
- You are a single or widowed person whose total income is less than the exemption limit of €18,000
- You are married or in civil partnership and jointly assessed and your total income is less than the exemption limit of €36,000
- Either you or your partner is 65 and older.
If you have dependent children, your exemption limits are increased.
To Sum Up: Income Tax in Ireland Made Easy
In this post, we navigate you through the key aspects of the Irish tax system aimed at making it align with your questions. Irish income tax is an integral element of the Irish taxation system and is based on self-assessment model. Individuals living and working in Ireland are responsible for determining their tax liability and filing their tax returns. While only individuals who reach certain income thresholds are chargeable for income tax, there are exemptions available based on personal circumstances. It’s important to note that companies paying corporation tax do not exempt individuals from paying personal income tax. Therefore, individuals must ensure they understand the Irish income tax system and comply with their tax obligations.
Chern & Co is on the mission of making businesses easy for entrepreneurs. We provide our customers with professional assistance in the preparation and filing of income tax returns. Share your tax fears and needs with us. Contact Chern & Co and we will take care of your Income tax compliance.