Cumulative vs Week One/Month One, which to ask for?

jwof2006

Hi Guys,



Apologies if this is a bit of a stupid question.



I am currently working for 3 different employers, one of whom I am paying "Cumulative" basis tax, and the other two who I'm paying "Week 1/Month 1" basis tax.



My understanding of cumulative (which may well be wrong), is that you pay a lower rate of tax until revenue know you have passed into a higher tax band at which point they start charging you more tax? So as the year goes on you pay more tax.


While with Week One /Month One, revenue calculates what your annual income is likely to be on a monthly/weekly basis, and charges you tax accordingly, hence your tax contribution through the year is pretty uniform, and if you are subsequently over taxed you can claim it back as a tax return.



I guess I'm just wondering if my understanding of these two options is correct? And which one do people most commonly opt for?


Thanks a million.

LaQuica

On a week one/month one basis, your tax credits are divided by 52 or 12. Each pay period is treated separately and you cannot carry forward any unused tax credits.

On a cumulative basis, you have your tax credits to the year and they are not restricted in anyway like above. Therefore, if you have unused tax credits in one week, they can be carried forward and used in the next week.

You don't pay tax at the lower rate throughout the year until you have passed into the higher band like you have said. Your standard rate cut-off point of €35,300 is divided into a weekly/monthly cut-off point, and anything above that would be taxed at the higher rate.

It is more beneficial to be taxed on a cumulative basis.

mogilvie

jwof2006 wrote: »

My understanding of cumulative (which may well be wrong), is that you pay a lower rate of tax until revenue know you have passed into a higher tax band at which point they start charging you more tax? So as the year goes on you pay more tax.

As per LaQuica above, but with a bit more info on refunds.

It's not quite your understanding. For cumulative method, the payroll software will look at all income YTD, and compare that with taxes deducted YTD. It then establishes how much tax you are due to pay in the current month.

For income tax it does this by spreading your tax credits and standard rate cut off point over the months in the year. So basically averaging out your standard rate and higher rate tax liability over each period of the year.

You can still hit the higher income tax band in Jan and Feb. You don't suddenly reach your yearly SRCOP and then all other income afterward is taxed at 40%.

Also, if you have a few periods of no income, then the system will figure out that you might have overpaid tax earlier in the year, and therefore refund some back to you.

jwof2006 wrote: »

While with Week One /Month One, revenue calculates what your annual income is likely to be on a monthly/weekly basis, and charges you tax accordingly, hence your tax contribution through the year is pretty uniform, and if you are subsequently over taxed you can claim it back as a tax return.

The key difference with week1/month1 is that there is no reference to any taxes paid in earlier periods. Whether it is consistent or not depends on your gross income and your tax circumstances.

jwof2006 wrote: »

I guess I'm just wondering if my understanding of these two options is correct? And which one do people most commonly opt for?

Generally, it is better to be on cumulative, as the tax liability self-adjusts through the course of the year so that at the end everything balances.

However, with COVID there were a bunch of payments made where tax is reckonable, but not deducted through payroll. So anyone who was on a COVID subsidy in TWSS will have been put on Week1 automatically by Revenue. This is so that they don't get hit with a big tax deduction.

Also, as you have multiple employments you should take a look at where your tax credits and standard rate cut off points are allocated. It's in your myAccount under Jobs and Pensions

Regards,
Mark
Parolla

jwof2006

Perfect thanks a million for these replies guys. Really helpful, appreciate it.

I will ask revenue to change me to Cumulative I think, as it is nice knowing that the correct tax is being taken. As from one month to the next I could be see-sawing between different tax rates.

Yea I do try to keep my tax credits roughly divided equally according to the amount of income deriving from the different jobs.

Thanks a million