Calculating PAYE

Calculating Tax

Calculating Tax is an important skill for Business and Maths. This section will highlight how to calculate Net Pay using an example of an employee who earns €55,000 per year.

The following tax rates will be used:

• Income Tax standard rate: 20% Income Tax higher rate: 40% Standard Rate cut off point: €40,000
• PRSI rate: 4%
• USC rates: 0.5% on the first €12,012 2% on the next €8,675 4% on the balance To calculate net pay, you calculate the total tax and deduct that from the gross pay.

Step 1: Understanding the Tax components

• Income Tax: A tax on your income, calculated at different rates based on income brackets.
• Universal Social Charge (USC): A tax on gross income.
• Pay Related Social Insurance (PRSI): A social insurance contribution.

Step 2: Income Tax Calculation

• Standard Rate (20%):
  • Income up to €40,000 is taxed at 20%.
  • Calculation: 40,000×0.20=€8,000
• Higher Rate (40%):
  • Income above €40,000 is taxed at 40%. €40,000 has already been taxed, so we tax the remaining €15,000.
  • Calculation: 15,000×0.40=€6,000
• Total Income Tax:
  • Calculation: 8,000+6,000=€14,000 8,000+6,000=€14,000

Step 3: USC Calculation

• First €12,012 at 0.5%:
  • Calculation: 12,012×0.005=€60.06
• Next €8,675 at 2%:
  • Calculation: 8,675×0.02=€173.50
• Next €49,357 at 4.5%:
  • Calculation: 34,313×0.045=€1,544.08
• Total USC:
  • Calculation: 60.06+173.50+1,544.08=€1,777.64

Step 4: PRSI Calculation

Rate of 4% on total income

• Calculation: 55,000×0.04=€2,200

Step 5: Calculate Net Pay

1. Gross Salary: €55,000
2. Total Deductions:

• Income Tax: €14,000
• USC: €1,777.64
• PRSI: €2,200

3. Net Pay Calculation:

• Calculation: 55,000−14,000−1,777.64−2,200=€37,022.36 As a result, the net pay figure is €37,022.36