Income Tax Calculation

How do I calculate my taxes?

You should begin by listing all your income.

This may include self-employment earnings; consultancy income (net of expenses); trading profits (net of expenses); employment income (including benefits-in-kind); investment income (including net profits from rented property, dividends and deposit interest excluding interest from special savings accounts); and any miscellaneous income such as pensions.

From this you should deduct any capital allowances to give your ‘aggregate income’. Make your tax deductions, i.e. covenants, non-mortgage interest and pension contributions, to arrive at your ‘total income’. Calculate your tax at 20 or 42 per cent and your PRSI and levies at the appropriate rate. From your total tax deduct any tax credits and reliefs (on PAYE paid, dividends, mortgage interest, medical insurance and local authority service charges) to arrive at your net tax liability. Finally, deduct any preliminary tax already paid.

Married Couples

If you’re married, you should list your and your spouse’s income separately. Income that arises in joint names should be split equally between you.

In the year of marriage, a couple are taxed as two single people unless the tax paid as such is greater than the tax payable by a married couple, in which case a refund can be claimed, but only from the date of your marriage. In subsequent years, married couples have a choice of joint assessment, separate assessment or single person assessment.

Unless you specify that you would like separate or single person assessment, you’re automatically given joint assessment (also known as aggregation), which in any case is the only option when one partner isn’t earning and is usually also the best arrangement in other cases.

Joint Assessment

Under joint assessment, you must decide which partner is the ‘assessable spouse’ (usually the higher earner), who’s responsible for making the tax return and paying the tax. You’ll both qualify for tax allowances as if you were single, but you’re entitled to transfer allowances between you.

If one partner is employed and the other self-employed, for example, there could be a cash flow advantage in transferring all the allowances to the employed partner. As tax isn’t payable under self-assessment until ten months after the end of the tax year, you would effectively be delaying payment of the bulk of your combined tax. If one partner earns less than your combined total tax allowances, you can transfer ‘unused allowances’ to the other.

Separate Assessment

Under separate assessment you’re still entitled to transfer allowances between spouses, but each partner’s tax affairs are treated separately, so that you must each submit a tax return and pay your share of tax. Separate assessment may be chosen by couples who prefer to be financially independent, yet don’t want to lose out on the tax benefits available to married couples.

Single Person Assessment

Single person assessment (or separate treatment) is similar to separate assessment in that each partner is treated separately for tax purposes. The difference is that allowances aren’t transferable between partners, so you can lose out on unused allowances and rate bands. This method of assessment is really only suited to couples who are both paying tax at the higher rate of 42 per cent.


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