Calculating Income Tax

How to calculate income tax

How is income tax calculated? Read our 5 steps below

Whether you’re an employer or an employee, you should understand how income tax is calculated. To make this less daunting we have broken down how to calculate income tax into 5 steps. We also won’t complicate things by covering Week 1 or Cumulative basis and we’ll ignore PRSI and USC too so we don’t run the risk of overwhelming you.

Calculate Income Tax


What is income tax?

Simply put, income tax is a tax on income that you earn from employment – it is deducted from your salary and paid to Revenue by your employer.

5 steps to calculate income tax:

  1. Find your rate band, tax credits, allowances and relief (click here)
  2. Apply 20% (the standard rate) to your income in your weekly, fortnightly or monthly (depending on your payment frequency) rate band
  3. Apply 40% (the higher rate) to your income that is above your weekly, fortnightly or monthly (depending on your payment frequency) rate band
  4. Add the two values
  5. Calculate the value of your tax credits on a weekly, fortnightly or monthly basis (depending on your payment frequency) and subtract this value from the previous value

And that’s it! It’s simple when you know how. Well, at least the basics are simple. Things can get a lot more complicated when you include all of the other aspects of payroll. Ensuring accuracy and compliance with the most up to date regulations can get difficult for many businesses and as a result more and more companies are opting to outsource their payroll to specialists.


For more on how to calculate income tax read:

Deductions When Calculating Employee Net Pay

Temporary Wage Scheme

Overview of Irish Payroll 

Payroll Calendar 2022

Glossary of Payroll Terms



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