You start a new job. Great!
Your first paycheck arrives... Happy days!
Now, your jaw hits the floor because you've been EMERGENCY TAXED.
However, there's no need to panic.
This is a situation that's largely avoidable. So read on if you don't want to get stung with emergency tax.
How do I know if my income is subject to emergency tax?
Whether you’re starting a new job, entering the workforce or returning to work after a long absence, there are ways to ensure you don’t get taxed on an emergency basis. You'll know if you've been emergency taxed if you see ‘emergency basis’ or tax code 'E' on your payslip.
Here is an example of a payslip and what the terms on your payslip mean and where to find your tax code:
Your new employer will only operate emergency tax in certain cases:
1. If you don’t have a PPS number and/or Tax Credit Certificate (TCC) (for example if you recently moved to Ireland or were not issued with a PPS at birth)
2. If your employer hasn’t received a Form P45 for the current tax year
3. If you give your employer a completed P45 indicating emergency basis applies
4. If you give your employer a completed P45 without a PPS number
In these cases, you’ll get a temporary tax credit for the 1st month of employment, but tax deductions will be increased progressively from the 2nd month onwards.
What's the best way to avoid it?
However, there are ways to avoid it, such as giving your P45 and PPS number to your new employer as soon as possible.
Your P45 tells your new employer how much tax, USC, and PRSI was deducted from your wages in your last job and they’ll use it to inform Revenue so they can get a P2C. The P2C form will then be used by your employer to calculate your rate of income tax!
The best place to get your P45 is from your previous employer and they should send it to you when you leave their employment.
You should also give your new employer your PPS number. This number can be found on tax documents or communications from a social welfare or tax office. It may also be on your payslips from previous employment.
If you don't know your PPS number, you can contact your local social welfare office. If you can’t supply your P45 and PPS number, your new employer will deduct tax on an emergency basis.
Under the normal emergency tax rules, if you’ve given your PPS Number to your employer, you get a tax credit and rate band for your first weeks of employment.
These are based on the Single Person Tax Credit and rate band for the tax year (whether you’re single, married or in a civil partnership). So your income is taxed at the standard rate until week 8 and then it’s taxed at the higher rate.
Where you can’t supply a PPS number, your employer is obliged to calculate your tax at the higher rate with no tax credit.
1. If you have no PPS number, you’ll be taxed at the higher rate of tax (40%) and marginal rate of USC (8%). If you subsequently provide your PPS number, previous pay periods won’t be recalculated to grant any tax credits and cut-off point you missed out on until the cumulative basis is applied.
2. Where you provide a PPS number but no P45 or Tax Credit Certificate, a provisional tax credit of €1,650 and provisional cut-off point of €33,800 may be granted. The credit is granted for 4 weeks and cut-off point for 8 weeks.
When you subsequently provide your PPS number, the normal emergency basis will apply to the earnings in that and subsequent weeks.
If you're entering the workforce for the first time, and don't have a P45, then you should register the details of your new job with Revenue and you can do this online.
It's best to do this as soon as you accept an offer, even if it’s only part-time or holiday employment. This gives your employer and the tax office time to get things sorted out before your first payday.
Revenue will then send a Tax Credit Certificate to you and P2C to your employer, which shows the total amount of your tax credits and rate band.
Your employer will then refund any overpaid tax and Universal Social Charge (USC) on your next payday!
The average Irish tax refund is €1076.17
How much do you get emergency taxed?
If you've given your employer your PPS number, you'll be taxed under normal emegency tax rules meaning you're allowed a single person's rate band for the first 4 weeks of your employmnet. You'll be taxed at the standard rate of 20% on income up to the limit of the rate band.
Income above that rate band will be at the higher rate. After four weeks, your full income will be taxed at the higher rate of 40%.
The steps you take to move from emergency tax to normal tax will depend on your circumstances:
When you're starting a new job, you should give your p45 to your employer as soon as possible.
If you're starting your first job ever in Ireland, once you have successfully registered your new employment with Revenue, your employer will be sent a P2C. Your new employer can then make the correct tax deductions from your pay and take you off emergency tax.
If you’ve been out of work for a while, you may not have a P45. In this case, you should contact your local revenue office so your tax credits and cut-off point can be accessed.
If you take up a 2nd job, the PAYE system will treat one job as your main employment. Revenue will then give your tax credits and rate band to that job.
You should contact Revenue as soon as you start your second job to ensure you receive a separate P2C and TCC for each employer. Without this, your new employer may deduct the incorrect amount of tax from your pay.
If you were unemployed between jobs, then you may end up with unused tax credits, which could result in a tax refund, so it’s worth reviewing your tax position at the end of the year. This is typically the case if you were unemployed for at least 4 weeks.
If you’re returning to work after a significant gap, you should ensure your tax and USC deductions are correct. Your new employer must deduct tax and USC from your pay from the beginning of your employment.
If you are still on a Week 1 or 'non-cumulative basis' at the end of the year, you should submit a Form 12 Tax Return to Revenue so they can review your tax situation.
Even though it can seem like the worst thing in the world, chances are you'll get any overpaid tax back promptly once you're back on the correct rate of income tax.
How do I claim my emegency tax back?
To get your emergency tax back, you'll need to file a P21 balancing statement at the end of the tax year. If you need help with this, don't hesitate to give Taxback.com a buzz. A member of our team will be more than happy to help you get back what you're owed.
If you’ve been taxed on an emergency basis then you can contact Taxback.com to get a refund and if you think you’ve overpaid tax, you can claim it back for the previous 4 tax years. Simply get your tax back here or email email@example.com.