Compulsory Deductions Flashcards
What are compulsory deductions?
Statutory payments that must be paid to the state
List the compulsory deductions which must be paid in Ireland
Income tax/Pay as you earn (PAYE)
Pay-Related Social Insurance (PRSI)
Universal social charge (USC)
Write a note on Income Tax
4 points
A compulsory tax taken from a person’s gross pay
The employer is legally required to deduct tax owed from a person’s gross wage or salary before payment
Paid directly to the Revenue Commissioners who collect this tax on behalf of the government
This money is used to maintain state services such as education
How is income tax calculated?
4 points
Calculated as a percentage of a person’s total income
The amount to be paid depends on individual circumstances
Individuals on a very low income are exempt from paying tax
There are two rates of income tax
What are the two rates of income tax?
A standard rate of tax at 20%
-Applies to income up to the standard rate cut-off point
A higher rate of tax at 40%
-Applies to any income earned above a person’s standard rate cut-off point
How is the standard rate cut-off point calculated for income tax?
It is calculated by the Revenue Commissioners and depends on individual circumstances
What are tax credits?
They reduce the amount of income tax a person has to pay
What is a notice of determination of tax credits and standard rate cut-off point?
A certificate sent to an employee by the Revenue Commissioners which lists his or her tax credit entitlements and tax liability
Write a note on PRSI
4 main points
A compulsory contribution taken from a person’s gross pay by an employer and paid directly to the Revenue Commissioners
The money from this is used by the government to run employment and training schemes and social welfare payments
A minimum number of 39 PRSI contributions must be made by an employee in the past tax year for them to claim social welfare benefits
Self-employed people pay low rates of PRSI and are entitled to a limited number of social welfare benefits
How are tax credits calculated?
They are calculated based on a number of factors including gross income and type of employment
How is PRSI calculated?
4 points
It is calculated as a percentage of a person’s total income
The amount due depends on individual circumstances
Both the employee and the employer share the cost of PRSI payments
Individuals on a very low income are exempt from paying PRSI
Write a note on Universal Social Charge
A compulsory tax taken from a person’s gross pay by an employer and paid directly to the Revenue Commissioners
Employees are liable to pay USC tax if their gross income is above 13,000 annually
Individuals who earn below 13,000 are exempt from paying USC
The amount due is calculated as a percentage of a person’s total income
What is P60?
2 points
A document sent by all employers to their employees at the end of the tax year.
It contains details of pay and the income tax, PRSI and USC that have been deducted by the employer and paid to Revenue
What is P45?
3 points
A document sent by an employer to their employee who has left their place of employment
It is a statement of pay as well as income tax, USC and PRSI that has been deducted up to the date they left
It is used by the new employer to help work out how much tax the person has to pay
