There are two income tax brackets in Ireland – the standard rate band and the higher rate band. It is important to understand how these tax brackets work and what tax credits you are entitled to claim, to ensure you are not out of pocket.
It is also worth noting that there is a four-year time limit for claiming any refunds of income tax so now is an opportune time to review your tax returns for the last few years. Our Tax Team explains all…
TAX BRACKETS IN IRELAND | EXPLAINED
What is the standard tax bracket in Ireland for a Single person?
The standard rate band for a person who is single or widowed is €35,300. This means that the first €35,300 of your income is taxed at 20% and anything above that is taxed at 40%.
If you qualify for the Single Person Child Carer Credit, your standard rate band increases by €4,000 to €39,300.
In addition, you may be able to claim a Single Person Child Carer Credit of €1,650 per annum if you care for a child/children on your own i.e. you are not married or cohabiting. Only one parent or guardian can claim this credit.
What is the standard tax bracket in Ireland for a Married Couple or Civil Partnership?
Each spouse/civil partner has a standard rate band of €35,300. For jointly assessed couples, if one spouse/civil partner has no income or is not using all of their standard rate band, they can transfer up to €9,000 to the other spouse/civil partner, meaning the couple will have a standard rate band of €44,300. If both partners have income, the standard rate band is €44,300 plus the lower of:
- €26,300, or
- the income of the spouse with the lower income.
The maximum standard rate band a couple can have is €70,600.
Tom and Mary are married and jointly assessed. Tom has PAYE income of €50,000 per annum and Mary has a self-employed income of €20,000 per annum. Their standard rate band for 2021 is €64,300 (i.e. €35,300+9,000+20,000). This means that €5,700 of Tom’s income will be taxed at the 40% rate of income tax.
Individuals who are married or in a civil partnership are jointly assessed for income tax purposes. This enables you to transfer some of your personal tax credits and standard rate band to your spouse/civil partner. Joint assessment is beneficial in situations where one spouse/civil partner has income below the standard rate band limit and is not using all of their tax credits. Under joint assessment, any repayments of tax are allocated between spouses/civil partners in proportion to the amount of tax each has paid.
While joint assessment is automatic, couples can choose to be separately assessed by notifying Revenue. If you elect for a separate assessment, then you are treated as a single person for tax purposes and cannot transfer credits or standard rate band to your spouse or civil partner.
Exemption Limits at age 65
Individuals aged 65 or older are exempt from income tax if their annual income does not exceed €18,000. The exemption limit for married couples is €36,000 per annum where either spouse is 65 or older.
Tax credits reduce your income tax liability. There are various types of tax credit including:
- Single person tax credit
- Married person or civil partner tax credit
- Employee/PAYE tax credit
- Earned income tax credit
A single person’s annual tax credit is currently €1,650. A married couple receives an annual tax credit of €3,300 which they can allocate between them as they wish.
In addition, individuals with PAYE or social welfare income receive an Employee/PAYE tax credit of €1,650 per annum.
If you are in receipt of self-employed/trading income or are a proprietary director in receipt of PAYE income from your company, you may be entitled to the earned income tax credit of €1,650 per annum. However, you cannot receive both the Employee/PAYE tax credit and the earned income tax credit so the maximum credit you can receive is €1,650. An individual cannot transfer their PAYE tax credit or earned income tax credit to their spouse/civil partner.