How does tax work

Marymoore

Do you get taxed the same amount each month, a fixed amount, or does it increase in later months when you’ve used your tax credits? Like towards the end of the year does it go up because you’ve earned more than your tax credits? Or is it all calculated at the beginning of the year? How does the tax office know how much to tax you as they don’t ask your salary?

sonyvision

Think about it this way. Your paid monthly so in January you get 1/12 of your tax credits applied to the salary.

In February it is recalculated using your total Income year to date against 2/12 of your tax credits and so on.

If your salary is unchanged in the year your net pay each month will be the same.

Marymoore

Thanks for the reply. But say a person earns €2000 a month but they’ll only be working for a few months they’ve no idea how long their contract is. Would they be paying tax as if they were earning €24000 yearly even though they might only earn €8000? Or how does it work?

The J Stands for Jay

Would they be paying tax as if they were earning €24000 yearly even though they might only earn €8000?

Yes.

sonyvision

If they earn 2,000 in each month Jan, Feb, Mar, April, they will get 1/12th of the yearly tax credits applied.

If they have no payment in May, June or July and start earning another 2,000 in August the tax is recalculated as follows.

year to date I come 10,000

Tax credits applied 8/12th thus indicating the person overpaid tax in the first 4 months generating a tax refund in August payroll.w

At the end of the year submit the tax form through the portal any refunds are the processed. It's a very good system and is recalculated each time a person is paid on a year to date basis running from Jan - Dec

tina1040

The tax office will always know how much salary you have earned so far in the year as the wages have to be submitted electronically to Revenue every week or month.

They also will have any social welfare payments you might receive between jobs or contracts and your tax credits will be adjusted so that your next wages payment uses the correct tax credits.

Marymoore

Thanks all