PAYE

PAYE = PAY AS YOU EARN, an income tax 

A brief formula would be (Y < =threshold @ 20%) + (Y-threshold @ 40%), where Y is the taxable income amount.

For threshold, refer to the revenue. From the textbook in use, it's at €40k for single/widowed without kids. This 2023's rate. Currently in 2024, it's €42k.

So to be in line with the textbook in use, we'll use 2023's rate through this blog.

There are four tax bands with varying threshold, which you need not remember as it is provided in the exam. 

So an example of the formula in use for a single person.

Taxable Income (Y) = €11,000

Threshold = €40,000

(Y < =threshold @ 20%) + (Y-threshold @ 40%)

Since it's Y < =threshold, input whichever is the lower. In this case, €11,000.

As for the second part, no input as it hasn't reached the threshold and there's no minus income.  

11-40 = -29k

So the calculation would be:

(11,000 x 0.20) + ( 0 x 0.40) = 2,200.

An example on a married couple with one one income.

Taxable Income (Y)  = 54,000

Threshold = €49,000

(49,000 x 0.20) + ( (54,000-49,000) x 0.40) = 11,800.

An example on a married couple with two income.

Taxable First Income (Y)  = 54,000

Taxable Second Income (Z)  = 54,000

First Threshold = €49,000

Second Threshold = €31,000

Since it's two people, One person will comply with the first threshold and the other with the second. As person one is exactly same as the example above, only need to calculate person two.

Person One's PAYE = 11,800.

Person Two's PAYE = (31,000 x 0.20) + ( (54,000-31,000) x 0.40) = 15,400.

Total tax = 11,800+15,400 = 27,200