Revenue Note for Guidance

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Revenue Note for Guidance

472 Employee tax credit

Summary

A tax credit (commonly known as the PAYE tax credit) is available to individuals in receipt of certain emoluments chargeable to tax under the PAYE system. The amount of the tax credit is €1,650 or 20 per cent of the emoluments, whichever is the lesser. In the case of a married couple or civil partners, both of whom are working, each spouse or civil partner is entitled to a separate tax credit.

Details

Definitions

(1)(a)appropriate percentage” is a percentage equal to the standard rate of income tax for a year of assessment.

emoluments” are emoluments to which Chapter 4 of Part 42 (that is, the PAYE system) applies or is applied. The exclusion of certain emoluments from the definition has the effect of denying the allowance to —

  • proprietary directors, their spouses, civil partners, children and children of their civil partner,
  • the spouse, civil partner, child or child of the civil partner, of the person paying the emoluments, and
  • the spouse, civil partner, child or child of the civil partner, of a partner in a partnership.

These exclusions, however, do not apply to children or children of the civil partner, of proprietary directors or self-employed individuals in certain circumstances – see subsection (2).

specified employed contributor” is a person who is an employed contributor for the purposes of the Social Welfare (Consolidation) Act, 2005, but does not include a person —

  • who is an employed contributor for those purposes only by virtue of section 9(1)(b) of that Act (that is, every person, irrespective of age, who is employed in insurable (occupational injuries) employment), or
  • to whom Article 81, 82 or 83 of the Social Welfare (Consolidated Contributions and Insurability) Regulations (S.I. No. 312 of 1996) applies.

director” is —

  • where a company is managed by a board of directors or other similar body, a member of that board or other body,
  • where a company is managed by a single director or similar person, that director or similar person,
  • where a company is managed by its members, a member of the company,

and includes any person who is or has been a director.

(1)(a) & (b)proprietary director” is a director who is either the beneficial owner of, or is able directly or indirectly to control more than 15 per cent of the ordinary share capital of the company. For this purpose, any ordinary share capital of a company which is owned or controlled by a child or spouse, civil partner or child of a civil partner, of such a director or any ordinary share capital of a company which is owned or controlled by a trustee of a trust set up for the benefit of persons, including any such person or such director, is treated as owned and controlled by the director or employee.

Children or children of a civil partner of proprietary directors and self-employed individuals

(2) The exclusion from the definition of “emoluments” does not apply for any year of assessment to emoluments paid, in that year, to children or the children of a civil partner, of proprietary directors and self employed individuals (other than such a child who is himself/herself a proprietary director) where certain conditions are met. The conditions are that —

  • the individual is a specified employed contributor, or the employer, in relation to the emoluments paid to the child in the year of assessment, complies, in so far as they apply, with the requirements of the PAYE system;
  • the terms of the employment are such as to constitute a full-time employment and the individual actually engages in the employment on a full-time basis. Accordingly, the child must throughout the year devote substantially the whole of his/her time to the employment (students and others employed on a part-time or temporary basis do not qualify for the deduction); and
  • the emoluments from the employment in the year of assessment must not be less than €4,572.

Cross-frontier workers

(3) Certain profits/gains received by an individual from an office or employment held or exercised outside the State are treated as emoluments for the purpose of the tax credit. The conditions which need to be satisfied are that —

  • the income is chargeable to tax in the country in which it arises,
  • the income is subjected on payment to a system of tax deduction which is similar in form to the Irish PAYE system,
  • the income is chargeable to tax in full in this State under Schedule D, and
  • the income would be emoluments within the meaning of subsection (1) if the office or employment was held or exercised in this State and the employer was resident in this State (this condition ensures that the tax credit can only be granted in respect of an office or employment which if held or exercised in the State would currently attract the tax credit).

Relief

(4) Where for any year of assessment an individual proves that his/her total income consists in whole or in part of emoluments, the individual is entitled to a tax credit of €1,650. (i.e. €8250 @ 20% = €1,650). Where an individual’s income is less than €8,250, the tax credit is restricted to 20% of the income. For example, total income €7,000 @ 20% = 1,400 (max) PAYE Tax Credit.

In the case of a married couple or civil partners jointly assessed to tax under section 1017 or section 1031C, each spouse or civil partner is entitled to this tax credit, or the appropriate percentage of their emoluments, whichever is the lesser.

Repayment

(5) In the case of a child or the child of a civil partner of a proprietary director or self employed individual who satisfies the conditions of subsection (2), the tax credit is given by way of repayment.

Relevant Date: Finance Act 2020