Chapter 12- Taxation Flashcards
What is taxation?
Money paid by people and businesses to the government.
Used to run the country.
Explain what are the reasons for taxation?
To raise money to run the country- pay for government services ex: building roads, running schools
To redistribute wealth- Take money from well off and give to less well off.- government takes higher % of tax from higher waged people- used to pay social welfare
To discourage consumption e.g cigarettes- more expensive so we buy less products who are bad for us
Explain direct taxes
Taxes that are imposed directly on income and are usually deducted at source.
Ex: Pay As You Earn (PAYE); Deposit Interest Retention Tax (DIRT).
Considered to be progressive - those earning the highest income pay the most taxes.
Explain indirect taxes
Taxes on goods or services.
Ex: Value Added Tax (VAT).
Are regressive meaning the rate of tax is the same for everyone and therefore the burden of tax falls heavily on those on lower incomes.
What taxes are paid by households?
Tax on Wages: PAYE, PRSI, USC Value Added Tax (VAT) Capital Gains Tax (CGT) Capital Acquisitions Tax (CAT) Deposit Interest Retention Tax (DIRT) Motor Tax
What is PAYE and what are the current PAYE rates
Pay as you earn is a tax on wages
PAYE is calculated by employer and deducted from an employee’s gross salary
20% on the first €35,300
40% on the balance
Tax Credits then deducted from the PAYE tax paid
What is the formula for PAYE
Formula: (Gross Pay x Rate of Tax) – Tax Credits
What is tax credit and the current rate
Amounts deducted from an employee’s wages reducing their overall tax bill.
Not refundable.
Different people qualify for different tax credits depending on circumstances.
All employees who work for a company receive a PAYE tax credit which in 2019 is €1,650
What is PRSI
Pay related social insurance- taken from employee’s wages by employer and paid to revenue
Current rate of employee PRSI is 4%
Qualifies employees for welfare benefits (e.g jobseeker’s benefit)
Employer’s also pay PRSI for every employee they employ (Employer Tax Rate: 10.95%)
What is the formula for PRSI
Formula: Gross Income x Rate of PRSI
What is formula for USC
Formula: Gross Income x USC rates
What is USC
Universal social charge -tax payable on ALL income (not just wages).
Introduced in 2011.
Introduced as way of making money for government during the recession. Currently being phased out.
Employers deduct from employee’s wages
Progressive
What are Current USC rates?
The current USC rates are: 0.5% (€0-€12,012), 2% (€12,013 - €19,874), 4.5% (€19,875 - €70,044), 8% (€70,045 - €100,000) and 11% on €100,001+
Explain a P45 form used in PAYE tax
Form given to employee when they leave their job.
Contains details of the employee’s Gross Pay, PAYE, PRSI and USC from the start of the year up until the employee leaves the job.
Form needed to claim social welfare benefits or is given to payroll in new job so they can calculate your wages correctly.
Explain P60 form used in Paye Tax
Form is given to every employee at end of tax year by employer
Details of how much gross income was earned and what tax and PRSI was deducted in that year.
Taxpayer has a statutory right
Used to claim a refund from the Revenue or as evidence that enough PRSI has been paid to claim social welfare.
Explain P21 form used in Paye Tax
Given at end of year shows difference between how much tax was paid that year and how much that was actually owed that year.
If an employee has overpaid they are due a refund from Revenue.
If an employee has underpaid they must pay the money they owe back to the Revenue.
What is another name for the P21?
Balancing Statement
Explain P12A form used in Paye Tax
Filled out when person starts working for first time
The Revenue uses this form to calculate a person’s tax credits and their rate of tax
If not filled out before work started, person is emergency taxed and will pay more tax on wages than they need to
What is VAT for household
VAT is a tax on goods and services and is a regressive tax.
Shop owner adds % of price of good to good’s price and customer pays total in. VAT
Four rates of VAT depending on the nature of the good or service. (0%, 9%, 13.5% and 23%.)
Not charged on essentials- education, funeral, medicines, children’s clothing
What is Capital gains tax
Tax paid on profits from sale of asset (e.g shares, investment properties).
Individual must work out the CGT they owe and pay it to the Revenue by certain date.
If not paid- interest and penalities
Annual exemption – a small amount of profit on sale of assets is exempt from CGT.
Not paid on the sale of a family home.
What does CGT stand for
Capital gains tax
What does CAT stand for
Capital acquisitions tax
What is Capital acquisitions tax
CAT - tax paid on value of a gift or inheritance.
Certain amount of gifts/inheritance is tax free and CAT not have to be paid.
Gifts / Inheritances between spouses – no CAT is paid.
Between child and parent – no CAT is paid up to a certain amount but after full CAT must be paid
Individuals calculate their own CAT and pay it over to the Revenue by certain date
What is deposit interest retention tax
Tax paid on interest earned on savings in savings account.
Bank or financial institution where savings are held deduct DIRT at source and pay it to the Revenue.
The amount an individual receives is the Interest minus the DIRT (net interest).
