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Need help on income tax!!!

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  • 16-11-2005 12:58pm
    #1
    jg912
    Closed Accounts Posts: 4 ✭


    Hi,

    Three questions relating to income tax...clarification really appreciated -

    1. Are tax credits and tax free allowance the same thing?
    2. If yes - how is the amount (of tax credits/TFA) calculated in any one tax year?
    3. If no - how do they differ, and how are both calculated?

    Thanks...


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    #2
    ck1
    Registered Users Posts: 123 ✭✭ck1


    Effectively they are the same as they acheive the same purpose. When it was tax free allowances you were allowed to earn a certain amount tax free and tax was calculated on the bit above. Now tax is calculated on it all basically and you then get a tax credit to offset against the tax calculated.

    The amount of tax credits is determained by the Budget and is based on your circumstances, i.e. whether you are single, married, single parent, PAYE worker, etc.


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    #3
    davidoco
    Registered Users Posts: 656 ✭✭✭davidoco


    Tax free allowances were abolished back in 2000 approx. Tax Credits then took over but they are they same thing in essence.

    For example

    Allowances
    1. €200 tax free allowance. Earn €200. Pay no tax.
    2. €200 tax free allowance. Earn €250. 250 – 200 = 50 @ 20% = €10 tax.

    Credits
    1. €40 tax credit. Earn €200. 200 @ 20% = €40. Credit of €40. Pay no tax.
    2. €40 tax credit. Earn €250. 250 @ 20% =€50. Credit of €40. Pay €10 tax.


    The tax system is further complicated by the use of the cut off point and tax bands. See the attached excel sheet for an example of how it works.

    See this link http://www.revenue.ie/leaflets/it1.htm for how the credits are calculated.


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