Cumulative Tax Basis explanation please

G-Money

Hello,

I'm currently disagreeing with my payroll company over how they've worked out my tax. They are saying I'm on a cumulative basis which is correct, however whatever way they've worked out my tax I'm actually earning less per month even though I'm getting paid almost 10 euro more per hour than I was.

They are adamant that they are right but I don't know how I can be paid more than other people I know, yet end up with hundreds of euro less per month.

My understanding of the cumulative basis is that they should take my gross salary, then deduct my tax credits for the month, followed by the income levy, PRSI etc, then tax me based on what's left.

However they are taking what I've earned so far this year, adding it together, then doing the same with my tax allowance and as a result my tax this month has jumped from 750 euro to 1650 euro which is completely insane.

Can anyone give some guidance as to how they should be working it out?

thanks

The normal basis of PAYE taxation operates on a Cumulative Basis from the beginning of each tax year.

As taxable earnings accumulate from the beginning of the year, so does the PAYE customers entitlement to Tax Credits and SRCOP.

In effect, each time an individual receives a payment through the PAYE system, their tax liability is re-calculated from the beginning of the year. Total PAYE falling due to that point in the tax year is compared against PAYE already paid, the difference being the amount of PAYE payable in the current period.

This method of calculation allows for rebalancing of PAYE through the payroll system during the course of a tax-year. The vast majority of Tax Certificates are issued on the Cumulative Basis of Taxation.

Seems they might be right ?
But at the same time your tax shouldn't be jumping like that...

gerrycollins

grandmaster wrote: »

Hello,

I'm currently disagreeing with my payroll company over how they've worked out my tax. They are saying I'm on a cumulative basis which is correct, however whatever way they've worked out my tax I'm actually earning less per month even though I'm getting paid almost 10 euro more per hour than I was.

They are adamant that they are right but I don't know how I can be paid more than other people I know, yet end up with hundreds of euro less per month.

My understanding of the cumulative basis is that they should take my gross salary, then deduct my tax credits for the month, followed by the income levy, PRSI etc, then tax me based on what's left.

However they are taking what I've earned so far this year, adding it together, then doing the same with my tax allowance and as a result my tax this month has jumped from 750 euro to 1650 euro which is completely insane.

Can anyone give some guidance as to how they should be working it out?

thanks

you have got it rightish an Im open for correction but i think the maths work out the same.

you gross pay is taxed up to the revelant cut off points and then your credits are then taken away from the amount of tax. income levy and prsi are calculated from your gross and then deducted.

has you personal circumstances changed in any way that you got married, changed jobs recently.

your payroll company is only taking the details from ROS and most software programmes do the work after so there is no direct human involvement. Are you salary or hourly rate?

Has your extra wages only recently increased? has it put you over the 20% cut off point? It happened me before, I got a hefty pay rise but because of the way the system works I had to pay a lot of tax until the revenue could sort it out.

LegacyUser

Your understanding is incorrect.

You are taxed on your gross salary at either standard rate or 41% depending on your standard rate cut off point (SRCOP).

Your tax credits are deducted from this tax liability and the difference is deducted from your salary shown as PAYE.

What may have caused the reduction in your net salary is a change in your PRSI class or where you may exceed a threshold with the new income levies. Hard to say exactly without seeing figures.

Have you changed job or received a new certificate of tax credits from Revenue recently? Maybe they have allocated credits somewhere they shouldn't be - it could happen

coffeepls

Hi Grandmaster
Maybe you have worked out the cumulative tax prob by now, but if not, here’s a general guide.

From your tax cert, you have an annual standard rate cut off point – it is usually around 36000 for example (just to give you an idea, this really is depending on personal circumstances)
You will also have an annual credits – probably around 3400 for example.

The best way to definitively work out how much tax you should have paid so far this year is this way:
Using the above figures to give you some help:

If say, the salary you are querying is for the month of March– this is month 3 of the year.
36000 (the annual cut off point) / 12 (months) x 3 = €9000.00
[3400 (the annual credits) / 12 (months) x 3 = €850.00

1st example:
If your gross taxable earnings for Jan, Feb and Mar are €8500, this is how much tax you should have paid since the start of the year:
As 8500 is less than 9000 (your total cut off point for this period)
Therefore, 8500 x 20% = 1700
Minus your total credits for this period – the €850
Total tax that should have been paid so far this year is 1700 – 850 = €850.00

2nd example:
If your gross taxable earnings for Jan, Feb and Mar are €9100, this is how much tax you should have paid since the start of the year:
As 9100 is more than your total cut off for this period of 9000, this means:
(9100 – 9000) x 41% = 41.00 (anything over the cut off is at 41%)
9000 x 20% = 1800.00 (anything at or below the cut off is at 20%)
1800 + 41 = 1841.00 minus your credits for this period of 850, = €991.00
Total tax that should have been paid so far this year is €991.00

From reading your query, it sounds like you have been stumped for tax at the higher 41%. It can really sting. Not all payrolls are the best at explaining things - especially if they are not good at manually working it all out.
I hope this helps - if all else fails, do check out www.revenue.ie, they have quite a good FAQ.