The basic method for calculating tax on pay is as follows

  • Apply the standard rate of tax (20%) on their gross pay up to their weekly cut-off point
  • Apply the higher rate of tax (40%) on any gross pay above their weekly cut-off point
  • Add the two amounts above
  • Subtract the amount of their weekly tax credits
  • If you pay your employees fortnightly or monthly, the same principles apply
  • The cut-off points are shown on the employee tax credit cert (P2C)

Example 1

Mark is your employee. The P2C you have received for Mark provides the following details:

  Yearly Monthly Weekly
Tax credits €3,300 €275 €63.47
Cut-off point €33,800 €2,817 €650

 

Mark earns €800 per week. This is how his weekly tax is calculated:

 

 

Income     Tax                 Explanation
Taxed at 20% €650 €130 Apply the standard rate of 20% up to the limit of the

cut-off point (€650) on the P2C.

Taxed at 40% €150 €60 Apply the higher rate of 40% to remainder of any gross pay

cut-off point (€800 – €650).

Gross tax €190 Add the amount of tax at the standard rate to the amount of tax at the higher rate.
Less tax credits (€63.47) Take away the tax credits as shown on the P2C.
Tax payable €126.53 Net tax payable.

This example does not take account of the income tax week or Mark’s previous income.

 

If the employee is on emergency tax because you have not received a P45 or tax credits cert (P2C) you should calculate their tax as follows:

Weeks of employment Tax credit Cut-off point Tax rate
Weeks 1 to 4
 €32
€650 Standard Rate (20%)
Weeks 5 to 8 No tax credit €650 Standard Rate (20%)
Week 9 onward No tax credit No cut-off point Higher Rate (40%)

 

If you need any further information please email primary@fssu.ie or phone (01) 9104020.