Not in love with understanding taxes? Don't worry, we make it simple!

Understanding Payroll Taxes

At Icon Accounting, we aim to simplify the all things taxations for our contractors, ensuring you have a clear understanding of your financial obligations without getting bogged down by complex jargon. Whether you are just starting out or you are a seasoned contractor, having a solid grasp of these components can significantly ease your financial journey. In this blog, we demystify these terms, offering clear insights and practical advice to help you understand your contracting payslips.

Key Payroll Tax Components

In Ireland, payroll taxes consist of several elements that contractors must understand. The main components include Income Tax, Universal Social Charge (USC), and Pay-Related Social Insurance (PRSI).

Let’s Talk Taxes!

Income Tax

Income tax is a fundamental charge on the money you earn, established to support public services and infrastructure. This contribution helps maintain the very services and facilities that benefit society as a whole.

What Types of Income Are Taxed?

Income tax applies to various earnings, including:

• Wages & Salary: Your regular earnings from employment.
• Profits from Self-Employment: Earnings from running your own business or freelancing.
• Dividends from Investments: Income derived from shares you own in a company.
• Interest on Savings: Particularly interest earned above certain thresholds.

How Is Income Tax Calculated?

Understanding how income tax is computed is essential for managing your finances:

Tax Bands Explained: Your tax liability depends on how much you earn. For instance, single-assessed individuals pay 20% on income up to €44,000 and 40% on income exceeding this. These thresholds can vary based on individual circumstances such as marital status.

What Are Tax Credits?

Tax credits reduce the tax you owe, essentially lowering your tax bill. For example, if your tax due is €2,000 and you have €500 in tax credits, you are only required to pay €1,500. The tax credits applicable to you can differ based on your personal circumstances and are crucial for effective tax planning.

Universal Social Charge (USC)

The Universal Social Charge is another layer in the tax system, designed to fund essential public services like health and social protection.

What Types of Income Are Subject to USC?

USC applies to:

• Wages & Salaries
• Notional Pay: Such as benefits-in-kind.
• Certain Pension Contributions

However, some payments from the Department of Social Protection may be exempt.

How Is USC Calculated?

Understanding how USC is structured will help you navigate your tax liabilities:

USC Rate Thresholds: Ranging from 0.5% on income up to €12,012, scaling to 11% on self-employed income over €100,000. These thresholds and rates apply individually and are non-transferable between spouses or civil partners.

PRSI

PRSI is essential as it funds the social welfare system, providing benefits such as pensions, unemployment benefits, and maternity pay. It is a key component of Ireland's social protection infrastructure, contributing to overall societal well-being.

What Are the PRSI Classes?

There are currently 11 different PRSI classes: A, B, C, D, E, H, J, K, M, S, and P. Your classification impacts the rate you pay and the benefits you are eligible to receive. Most contractors fall under Class A or Class S.

How Much PRSI Will I Pay?

Your PRSI contributions depend on your income level and class. From October 2024, the PRSI rate increased by 0.1%. You can find details on PRSI calculation changes here: Government PRSI Update

How Is PRSI Calculated for Class A and Class S?

Class A PRSI Calculation

• Employer Portion:
  • Effective from 1 January 2025:
    • 8.9% PRSI on weekly earnings up to €527.
    • 11.15% PRSI if earnings exceed €527.

• Employee Portion:
  

  • Earning over €352 per week: Starting 1 October 2024, employees will contribute 4.1% PRSI on their total earnings.

Class S PRSI Calculation For income bands up to 30 September 2025:

More than €500 weekly income: Under PRSI Subclass S1, 4.10% of all income.

Are There Any More Changes to Expect?

A further increase of 0.1% is planned for October 2025.

Partnering with Icon Accounting

Navigating the complexities of payroll taxes and compliance can be challenging. That is where partnering with a professional accounting service like Icon Accounting can make a significant difference.

Professional accountants stay up to date with the latest tax laws and regulations, ensuring you are always compliant and they can identify opportunities for tax savings that you might overlook on your own.

At Icon Accounting, we are committed to simplifying your tax journey, ensuring you have clear insights into your obligations and entitlements. Whether you are new to contracting or an experienced professional, our team is here to support you every step of the way.

Reach out to us to discover how we can make tax management an effortless part of your financial endeavours