On salary or wage or pension received by job doers, the Revenue levies income tax on behalf of the Irish Government. Instead of overburdening the taxpayers with a one-time payment of tax, Revenue allows them to pay tax as they earn.
PAYE stands for “Pay as You Earn”. Whenever the employers pay salary or pensions to employees or directors, they calculate and deduct income tax amount on employee’s income and pays to the Revenue. Wages includes sick pay, maternity or paternity pay and adoption pay. You pay tax over the whole year, each time you are paid, rather than paying tax in one lump sum.
Following taxes are deducted from the income of the employee –
- Income Tax
- Pay Related Social Insurance (PRSI)
- Universal Social Charge (USC)
PAYE pulls off the burden from employees’ shoulders, enabling them to evenly pay the tax amount on each payday in a tax year.
When should employers register for PAYE?
An employer must register for PAYE if he or she pays the employee more than –
- €8 per week (or €36 per month), if the employee is working full time,
- €2 per week (or €9 per month), if the employee is working part-time.
If an employer has recruited only one employee, who is domestic and is being paid less than €40 per week, then he doesn’t have to register himself for PAYE.
When is the concept of PAYE Modernisation?
Revenue is introducing PAYE modernisation from Jan 1, 2019, to ensure hassle-free communication with businesses and ensuring the deduction of correct PAYE amount.
Under the new system, companies will have to submit details related to the employees’ pay, tax, and other deductions, as well as details of joining and relieving to the Revenue. They have to provide the details on each payday, and the Revenue will ensure that the tax is correctly deducted at the right time for every employee.
The employer will provide the Revenue with payroll information for every employee he or she is paying, including –
- Family Members
- New Employees
- Departing Employees
- PAYE Exclusion Order Employees
The employer also has to report PPSN of every employee. If the PPSN isn’t available, employee’s name, address, date of birth, and employer reference must be stated.
What are the amounts to be reported?
An employer has to report the following amounts about an employee –
- Gross Pay – All the income before any deductions are made,
- Pay for Income Tax – Gross Pay minus regular payments made by the employee into a pension fund (superannuation contributions)
- Pay for USC purpose – Gross Pay minus payments from Department of Employment Affairs and Social Protection
- Pay for Employee Pay Related Social Insurance (PRSI) purpose – Gross Pay plus notional pay plus Benefits in Kind (BIK) plus payments made to Approved Superannuation Schemes, Personal Retirement Saving Accounts (PRSA), Approved Revenue Funds (ARFs) and approved permanent health insurance schemes.
- Income tax Paid
- PRSI Class and Subclass
- Employee & Employer PRSI Paid
- USC Paid
PAYE modernisation will make the PAY reporting obligation simple and quick, besides improving the business processes also. What are your thoughts about PAYE modernisation? Let us know in the comment section below.
Are you ready for PAYE Modernisation? The new real-time reporting regime will be operational for all employee payments being made from 1st January 2019.
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