Understanding Irish Tax Credits – The PAYE Tax Credit

In our Series on Understanding Tax Credits we examine the PAYE Tax Credit in some detail.

As a Pay As Your Earn (PAYE) employee, your employer will calculate and deduct the relevant taxes from each pay packet.  Individuals subjected to PAYE receive the PAYE (also referred to as a Schedule E) Tax Credit from Revenue.  The PAYE Tax Credit for 2013 is €1,650.

The PAYE Tax Credit is claimed by the individual when they are registered as an employee for the first time on Form 12A.  For a married couple or civil partnership the PAYE tax credit can be claimed by each of the individuals where both spouses are in employment but is not transferrable between them.  Regardless of income or number of employments, an individual can only claim a maximum tax credit of €1,650.

Individuals who are self-employed, or people who own or control directly or directly, more than 15% of the shares in the company in which they are employed cannot claim the PAYE tax credit.  No PAYE tax credit is allocated to a person who is employed by their spouse or civil partner.  In certain circumstances, an employers children may qualify for the PAYE tax credit.  To qualify, they must be employed full-time by the parent, or parent’s company, earn at least €4,572 per tax year and have their PAYE deducted through the payroll in the normal way.  A student employed by their parent’s company will usually not qualify for the PAYE tax credit.

People who receive an occupational pension and certain other payments from the Department of Social Protection (DSP)  qualify for the PAYE tax credit.  Recipients of a Social Security pension from another EU country is also entitled to the PAYE tax credit in respect of that pension subject to a maximum of €1,650.

A person who earns less than €8,250 per tax year will not be entitled to the full tax credit of €1,650.  Individuals are entitled to a tax credit of 20% of their income, subject to a maximum of €1,650.  A person who earns only €5,000 per year will receive a tax credit of €1,000, being 20% of the €5,000.

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