Understanding Irish income tax for employers
Reviewed by Mellow Editorial Team, HR & payroll content team
Irish income tax is deducted by the employer on behalf of Revenue through the PAYE system — you calculate each employee's liability on every payrun, deduct it at source, and report it to Revenue in real time on or before payday.
How PAYE works
PAYE (Pay As You Earn) is the mechanism through which employers collect income tax, USC and PRSI from employees and pay it over to Revenue. You are legally responsible for getting the calculation right. Getting it wrong — whether you under-deduct or fail to report on time — is your liability, not the employee's.
Revenue issues each employee a Tax Credit Certificate (TCC). This tells you their tax credits, rate band cut-off point and any other relevant instructions (for example, whether a previous employer has used some of the standard rate band). You must apply the figures on the TCC, not estimate them.
The income tax rates and bands
Ireland uses a two-rate income tax system. Income up to approximately €44,000 a year (for a single person in the 2026/27 tax year) is taxed at the standard rate of 20%. Income above that threshold is taxed at the higher rate of 40%.
Crucially, Ireland does not use a personal allowance to make the first slice of income tax-free. Instead, it uses tax credits. A tax credit reduces the final tax liability directly — euro for euro — rather than reducing the amount of income that is taxable. Every employee receives at least a personal tax credit and an employee (PAYE) tax credit. These are reflected in the figures on their TCC.
In practice: you calculate gross tax at 20% and/or 40% depending on where the employee sits in the band, then subtract their tax credits to arrive at the net income tax due.
USC — Universal Social Charge
USC is a separate charge on gross income. It runs in bands: 0.5% on the first slice of income, then 2%, then 3%, and 8% on income above the higher threshold. Each employee's TCC will also carry their USC cut-off points.
USC and income tax are calculated and deducted together through PAYE but they are distinct liabilities. Some categories of employee are exempt from USC entirely — for example, those earning below the annual exemption threshold — but in most cases a full-time employee on a standard salary will pay USC across multiple bands.
PRSI — what employers need to add
PRSI (Pay Related Social Insurance) is calculated on gross reckonable pay. For most employees on Class A (the standard class for employees in insurable employment), the employee contributes approximately 4.1% of their gross pay. The employer contributes approximately 11.15%.
The employer's share of PRSI is a cost on top of gross salary — it does not come out of the employee's pay. When you are budgeting for a new hire, you need to factor in the 11.15% employer PRSI as part of the total employment cost.
Both employee and employer PRSI are remitted to Revenue as part of the same payroll submission.
Real-time reporting obligations
Since 2019, Ireland has operated real-time payroll reporting. You must submit a Payroll Submission Request (PSR) to Revenue through ROS (Revenue Online Service) on or before the date you pay your employees. You cannot submit retrospectively without explanation and potential penalty.
The submission covers income tax, USC and PRSI for every employee paid in that period. At the end of each month, Revenue issues a summary of what you owe. Payment deadlines for the monthly charge typically fall on the 23rd of the following month if you pay electronically through ROS.
If you run payroll weekly, fortnightly or monthly, the same on-or-before rule applies each time you pay. This makes accurate, timely payroll processing a genuine compliance obligation rather than a periodic administrative task.
Pension contributions from 2026 onwards
Ireland's pension auto-enrolment scheme, My Future Fund, is being introduced from 2026. Once it is live, eligible employees will be automatically enrolled and both the employee and employer will make contributions. Employers will need to account for these alongside income tax, USC and PRSI when calculating the full cost of pay. The scheme adds another layer to payroll processing, so understanding the current PAYE framework clearly now will make that transition more straightforward.
Keeping tax credits current
An employee's tax credits can change during the year — for example, if they claim a new credit or Revenue adjusts their record. Revenue will issue a revised TCC, and you are obliged to apply the updated figures from the next payrun. Running payroll on outdated TCC data means deducting the wrong amount, which creates reconciliation problems at year end for both you and the employee.
If a new employee starts and has no TCC on file yet, you must operate emergency tax rules until Revenue issues one. Emergency tax typically means applying no credits and taxing at the higher rate after a short period, so employees have a strong incentive to register promptly.
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