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Methods of calculating tax

  1. Overview
  2. Rule for calculating tax
  3. Cumulative basis
  4. Week 1 basis
  5. Emergency basis
  6. Tax exemption and marginal relief

Cumulative basis

Note

The information on this page refers to your current obligations. For your obligations before 1 January 2019, please see the Employers Guide to PAYE.

An employee’s tax is generally calculated on a cumulative basis. Cumulative tax is the tax due on an employee’s total income from 1 January to the current date. The tax due for any pay period is the cumulative tax payable less the tax already deducted during that year.

You tax an employee on a cumulative basis when you have received a cumulative Revenue Payroll Notification (RPN) for them. The RPN shows an employee’s yearly:

If an employee worked previously in the year, the RPN also shows their previous income and tax and USC paid. You take these figures into account when using the cumulative basis.

There are weekly and monthly Income Tax calendars for your reference.

  • Example 1

    Mark is your employee. The RPN you have received for Mark provides the following details:

    Description Yearly
    Tax credits €3,750
    Cut-off point €42,000

    To calculate weekly tax credits and rate band divide the figures provided on the RPN by 52. For fortnightly, divide each figure by 26 and for monthly, divide by 12.

    Mark earns €850 per week. This is how his weekly tax is calculated:

    Description IncomeTaxExplanation
    Taxed at 20% €807.70 €161.54 Apply the standard rate of 20% up to the limit of the cut-off point (€42,000/52wks = €807.70) on the RPN.
    Taxed at 40% €42.30 €16.92 Apply the higher rate of 40% to income above the cut-off point (€850 - €807.70 = €42.30).
    Gross tax   €178.46 Add the amount of tax at the standard rate to the amount of tax at the higher rate.
    Less tax credits   €72.12 Take away the tax credits as shown on the RPN (€3,750/52 weeks = €72.12).
    Tax payable   €106.34 Net tax payable.

    The above example does not take account of the Income Tax week or Mark's previous income.

  • Example 2

    Fiona is your employee. The RPN you have received for Fiona provides the following details:

    Description Yearly
    Tax credits €3,750
    Cut-off point €42.000

    To calculate weekly tax credits and rate band divide the figures provided on the RPN by 52. For fortnightly, divide each figure by 26 and for monthly, divide by 12.

    It is week 26 of the current year. Fiona has earned a cumulative pay of €21,500 by the end of week 25. She has paid €2,800 tax on this amount. In week 26, Fiona earned €1,000. This is how her tax is calculated this week:

    Cumulative pay at week 26: €21,500

    Cumulative tax up to week 25: €2,800

    Cumulative cut-off point at week 26: €21,000

    Cumulative tax credits at week 26: €1,875

    Description IncomeTaxExplanation
    Taxed at 20% €21,000 €4,200 Apply the standard rate of 20% up to the limit of the cumulative cut-off point(€42,000 / 52 weeks x 26
    weeks = €21,000).
    Taxed at 40% €1,500 €600 Apply the higher rate of 40% to income above the cumulative cut-off point (€22,500 - €21,000).
    Gross cumulative tax   €4,800 Add the amount of tax at the standard rate to the amount of tax at the higher rate.
    Less cumulative tax credits   €1,875 Take away the cumulative tax credits per the income tax week. (€2,400 / 52 weeks x 26
    weeks = €1,200).
    Cumulative tax payable   €2,950 Gross tax less tax credits.
    Cumulative tax paid   €2,800 Take away the total tax Fiona has already paid so far this year.
    Tax payable this week   €125.00 This is deducted from Fiona's gross pay of €1,000 this week. Fiona’s net pay is €875 (€1,000 - €125).

Refunds of tax

When you operate tax on a cumulative basis, your employees are sometimes entitled to tax refunds. This is outlined in more detail in Refunding tax to employees.

Next: Week 1 basis

Published: 01 January 2024 Print this page

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