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higher tax rate

  • 02-05-2012 7:09pm
    #1
    lemonad
    Registered Users, Registered Users 2 Posts: 1 ✭


    As a couple we have amalgamated our tax credits. To my understanding this means we do not pay the higher rate of tax until we earn €64K between us. My question is, is this calculated on a month by month basis.ie. if we earn over €5.4K per month or does it kick in when we have surpassed the €64k mark during the tax year?
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  • #2
    relax carry on
    Registered Users, Registered Users 2 Posts: 4,113 ✭✭✭relax carry on


    lemonad wrote: »
    As a couple we have amalgamated our tax credits. To my understanding this means we do not pay the higher rate of tax until we earn €64K between us. My question is, is this calculated on a month by month basis.ie. if we earn over €5.4K per month or does it kick in when we have surpassed the €64k mark during the tax year?

    There are two elements to the paye system, tax credits and rate band. Rate band is the first element which is where the 20% and 41% rate come in.

    For a single person the standard rate band is 32800 for the tax year. That means you can earn up to 32800 at 20% over the the tax year. This is worked out on cumulative basis. Anything above 32800 is taxed at 41%.

    For a jointly assessed couple, they each still have the 32800 rate band but can opt to transfer up to 9000 of the rate band to the higher earner if the lower earner isn't using it.

    For example

    One person on 40000 and the other on 20000.
    The person on 40000 will have 7200 taxed at 41% as that's how much is over the 32800 rate. The person on 20000 has all the 20000 taxed at 20% as its all below 32800.

    If they were joint assessed, the lower earner could transfer 9000 Euro of their rate band to the higher earner giving them a rate band of 41800. This would push all of the 40000 into the 20% rate. This can be done on an annual review basis (request a balancing statement) or by filing a return. It can also be done during an active tax year by telling Revenue what your salaries are and allowing them to allocate the rate bands accordingly.

    Also Revenue have no idea how much you earn weekly or monthly. Your employer works out when to tax you at 20% and 41% based on the information sent to them by Revenue. They have no idea of your partners income or rate band and do not need to know.



    http://www.revenue.ie/en/tax/it/leaflets/it2.html

    http://www.revenue.ie/en/personal/faqs/how-do-i-work-out-my-tax.html


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