Chapter 4 - Key Personal Taxes Flashcards
What is taxation?
Taxation is the taxes and charges collected by the state to pay for things that we all share and need as a country.
You need to know about personal taxes and charges because:
They affect everybody’s quality of life
The law states that we have to pay them
They are paid by individual,employees(workers) and all companies
They provide income for the state and we all need the resources that our government spends its income on
Resources funded by the government
These resources include infrastructure,roads,parks,schools,hospitals,reservoirs,sewage systems playgrounds,libraries, and swimming pools.
The government must also finance to cost of running these resources.
For example heating and lighting them and the wages to pay doctors,nurses,soldiers,guards,teachers etc.
What is work?
Work is anything you do that requires effort
What is employment?
Employment is work which you are paid for
What is gross pay ?
The total money you earned before any deductions have been made
GROSS PAY =BASIC PAY +OVERTIME+ COMMISSION+ BONUS
What is net pay?
Net pay is your take home pay after any deductions have been made.
NET PAY=GROSS PAY -DEDUCTIONS
What are statutory deductions?
Statutory deductions are items that are compulsory and that are taken away from your gross pay and given to the government .
There are 3 main types of statutory deductions:
Income tax (PAYE)
PRSI
USC
What is income tax (PAYE) ?
PAYE (pay as you earn ) is paid on the amount a person earns; it is a percentage of gross income.
PAYE is charged at 20% on the first 33,800 earned - this is called the standard rate of tax.
Anything earned above 33800 is taxed at 40%- thus us called the higher rate of tax.
What is PRSI ?
PRSI ( pay related social insurance ) is given to the department of social protection and used to pay social welfare benefits such as Jobseeker’s benefit and state pensions.
PRSI is charged at a rate of 4% of gross income.
People between the age of 16-66 have to pay it.
What is USC ?
USC ( universal social charge ) is another tax on income.
The amount of USC you pay increases as your income increases.
If you earn less that €13,000 in a yer you will not pay USC.
What are non-statutory deductions ?
Non-statutory deductions are items that are voluntary (you choose to pay them ) and that you agree can be deducted from your gross pay.
These are some non-statutory deductions:
Pension schemes
Trade union subscriptions
Health insurance
Pension schemes
Pension scheme- you may choose to pay into a private scheme to provide you with a pension income when you retire from employment.
Trade union subscriptions
Trade union subscriptions - this is a voluntary fee you pay to a union.
A union is an organisation that aims to help,support and protect workers.
Health Insurance
Health insurance- you may choose to pay into a private scheme such as VHI ( voluntary health insurance) or Aviva, to cover you for healthcare
Tax rates
Tax is charged as a percentage ( %) .
Different rates may apply to different levels or bands of income.
What are tax credits ?
Tax credits decrease the tax you pay.
Everyone receives a personal tax credit ( 1,650) and an employee tax credit (1,650 ) which amounts to 3300 .
This means that if you do not earn more than 16,500 you wont pay any tax.
Tax on savings
Another form of income can be the interest earned on savings, which may also be taxed.
The tax that applies is DIRT ( deposit interest retention tax ).
The rate of DIRT in 2016 was 41%
Tax Credit Certificate -When you are working your employer must deduct tax from your pay under the PAYE system to ensure that your tax properly dealt with from the start and that your employer deducts the right amount of tax from your pay you should do two things:
- Give your employer your PPS (personal public service number ) number.
- Apply for a tax credit certificate
Tax allowances
Tax allowances can also reduce the amount of tax you pay.
It is deducted from your gross pay before it is taxed.
You multiply th amount of tax reduction by the rate of tax %%%%
Other taxes
Companies have to pay CORPORATION TAX, which is a tax on their profits .
When we buy goods and services we are often paying VAT ( value added tax )
Custom duties are a tax on imported goods ( brought into Ireland)
Excise duty is a tax on some home produced goods .
Owners of property must pay PROPERTY TAX. The rate depends on the value of your property.
