UNDERSTANDING YOUR PAYSLIP
MOST people have trouble trying to understand the deductions from their gross pay. Deductions are made using a computer programme and it is often difficult to query the figures. When you do, then people tend to blame the computer rather than accept the responsibility for what may well be personal incompetence. A computer is only as good as the data fed into it.
Basically, there should be three separate deductions from gross pay:
Income Tax is deducted at either 20 per cent and 40 per cent or just 20 per cent alone, depending on the income earned for the period. The amount of income tax is computed by reference to the Certificate of Tax Credits issued by Revenue to the employer. Technically, this certificate is referred to by Revenue as Form P2C and is updated each December for the following year.
Universal Social Charge is deducted on the first €231 of earnings each week at 0.5 per cent and on the next €130 of earnings each week at 2.5 per cent. Above that level of earnings the USC rate of five per cent applies. Many people who are exempt from Income Tax due to low earnings are still caught for USC. If your total income is less than €13,000 per annum then you should not be paying USC. Income from the Department of Social Protection, such as the State pension, is not liable to USC.
PRSI is deducted from wages and salaries, usually at Class A rate of four per cent. If you are aged 66 or over then the Class J rate of 0.5 per cent applies. Your entitlement based on paying the Class A rate is primarily Unemployment Benefit and the Contributory State Pension. You are also entitled to free treatment in the public ward of a hospital funded by the HSE. A little-known other benefit is that you are entitled to go to another EU State and get treatment in a hospital there for which the Irish HSE will have to pick up the tab.
In many small business operations the employer may agree a net pay rate with an employee. In this situation the employer agrees to pick up the bill for whatever tax, USC and PRSI that must be deducted from the employee.
This can work to an employee’s advantage. Suppose the spouse works for the State or for a large private firm then the employee who gets a net pay rate in a small business can transfer all their credits to the other spouse with a big employer. Thus, the small business may find it very expensive to pick up the deductions when all the tax credits are gone to the other spouse.
With a large employer, there may be deductions from payroll for pension contributions, holiday fund and medical insurance group schemes. Here, only the pension contribution may be relevant when calculating deductions from gross pay.
A person who believes their tax deductions are wrong should first take it up with the employer and, if not satisfied, then they should contact the Revenue quoting their PPS number and their employer’s PAYE Registration number.