Tommy is a manager at Centre Parcs Ireland and earns a gross annual salary of €85,000. His employer provides him with a company car worth €25,000. This is treated as income for tax... Tommy is a manager at Centre Parcs Ireland and earns a gross annual salary of €85,000. His employer provides him with a company car worth €25,000. This is treated as income for tax purposes and is taxed accordingly. Tommy's tax information is shown below. PAYE 20% on the first €40,000 40% on the balance of his gross income TAX CREDITS Single Person Tax Credit €1,700 PAYE Tax Credit €1,700 Dependent Relative Tax Credit €245 USC 0.5% up to €12,012 2% on the next €9,281 4.5% on the balance PRSI Tommy pays employee PRSI at 4% of his gross income Calculate each of the following: (i) The PAYE which Tommy has to pay (ii) The total amount of USC (iii) The total amount of PRSI (iv) Tommy's annual take-home pay Read more

Steps to Solve

1. Calculate Tommy's total gross income

Tommy's gross annual salary is €85,000 and the company car is worth €25,000. His total gross income is the sum of these two amounts. $$ \text{Total Gross Income} = €85,000 + €25,000 = €110,000 $$

2. Calculate Tommy's PAYE

The first €40,000 is taxed at 20%, and the balance is taxed at 40%. Tax on first €40,000: $$ 0.20 \times €40,000 = €8,000 $$ The balance of his income is: $$ €110,000 - €40,000 = €70,000 $$ Tax on the balance: $$ 0.40 \times €70,000 = €28,000 $$ Total gross PAYE: $$ €8,000 + €28,000 = €36,000 $$

3. Calculate Tommy's total tax credits

Tommy has a single person tax credit of €1,700, a PAYE tax credit of €1,700 and a dependent relative tax credit of €245. His total tax credits are the sum of these three amounts. $$ \text{Total Tax Credits} = €1,700 + €1,700 + €245 = €3,645 $$

4. Calculate Tommy's net PAYE

Subtract the total tax credits from the gross PAYE to find the net PAYE. $$ \text{Net PAYE} = €36,000 - €3,645 = €32,355 $$

5. Calculate Tommy's USC

The first €12,012 is taxed at 0.5%, the next €9,281 is taxed at 2%, and the balance is taxed at 4.5%.

USC on first €12,012: $$ 0.005 \times €12,012 = €60.06 $$ USC on next €9,281: $$ 0.02 \times €9,281 = €185.62 $$

Balance of income for USC calculation: To calculate the balance we need to subtract the previous thresholds from the gross income $$ €110,000 - €12,012 - €9,281 = €88,707 $$ USC on the balance: $$ 0.045 \times €88,707 = €3,991.82 $$ Total USC: $$ €60.06 + €185.62 + €3,991.82 = €4,237.50 $$

6. Calculate Tommy's PRSI

Tommy pays PRSI at 4% of his total gross income of €110,000. $$ \text{PRSI} = 0.04 \times €110,000 = €4,400 $$

7. Calculate Tommy's annual take-home pay

Subtract the net PAYE, total USC, and PRSI from his total gross income. $$ \text{Take-Home Pay} = €110,000 - €32,355 - €4,237.50 - €4,400 = €69,007.50 $$