Tax is calculated as a percentage of your income. Your tax credits are deducted from this to give the amount of tax that you have to pay. A tax credit will reduce your tax by the amount of the credit.
Everyone is entitled to a personal tax credit. There are personal tax credits for:
People who are married or in a civil partnership
People who are widowed or are surviving civil partners
If you are in employment, getting a pension or getting a taxable social welfare payment (such as Jobseeker’s Benefit) you are also entitled to the Employee Tax Credit (formerly known as the PAYE tax credit) of €1,650.
So, for example, if you are single and in employment you are entitled to an annual tax credit of €1,650 and the Employee Tax Credit of €1,650. When the total amount of tax you owe is calculated, €3,300 will be deducted from this.
This means that if you earn €16,500 or less you do not pay any income tax (because your tax credits of €3,300 are more than or equal to the amount of tax you are due to pay). However you might need to pay a Universal Social Charge (if your income is over €13,000 and PRSI (depending on how much you earn each week).
If you are married or in a civil partnership, you have the option of sharing tax credits and tax bands between you and your spouse or civil partner. If one spouse or civil partner works in the home, caring for one or more dependent people, you may be able to claim a Home Carer Tax credit. You can read more about taxation of married people and civil partners.