What is a tax credit?
A tax credit is an amount of money that is taken off your final “tax bill” every year. For example, an employee in the Pay As You Earn (PAYE) system is entitled to the PAYE tax credit of €1,650 (2014). Their final annual tax bill is €1,650 smaller because of this tax credit. For more information on tax credits go to Revenue’s guide.
What is an allowance?
Some tax relief is given by means of tax allowance instead of tax credit. A tax allowance is an amount that reduces your taxable income every year. It differs from a credit, which is subtracted from your tax bill, as it is deducted from your taxable income. Tax reliefs given by way of allowance currently include pension contributions and investments in film relief.
What is the “standard rate”?
This is the standard rate of income tax, which is currently 20%.
What is the “marginal rate”?
The marginal rate is the higher rate of income tax and is currently 41%. The marginal rate applies to income earned over the standard rate band – see “What is the standard rate band?” below.
What is a standard rate band?
A rate band is an amount of money on which you pay tax at a particular tax rate. For example, in 2014 a single person has a standard rate band of €32,800, which means that they pay tax of 20% on the first €32,800 of their income. For amounts over €32,800 they pay tax at the marginal rate, which is 41%.
What is the standard rate cut-off point (SRCOP)?
This is the amount above which a taxpayer pays tax at the higher rate of 41%. The SRCOP can be higher than the standard rate band owing to the allowances and reliefs that a person is entitled to. If a person is entitled to certain reliefs, these can be granted by increasing the amount at which they pay 20%.