Tax for Teens – Part 3: How Tax Is Actually Calculated

In our last post, we talked about when you start paying tax. But once you're earning above the threshold — how is your tax actually calculated?

You’ve probably heard people mention things like “tax bands,” “credits,” or being “taxed at 40%.” But what does any of that actually mean?

In this post, we’ll break it all down and show you, step by step, how Irish tax is calculated using a real-life example.

Income Tax – What Are Tax Bands?

Ireland has a progressive tax system. That means the more you earn, the more tax you pay — but not all at once.

Here's how it works:

• You pay 20% tax on the first part of your income — up to a certain limit.
• You pay 40% tax on anything you earn above that limit.

As of 2025, the standard rate band is:

• €44,000 per year for a single person
• So income up to €44,000 is taxed at 20%
• Any income over €44,000 is taxed at 40%

Example:
If you earned €50,000 in a year:

• The first €44,000 is taxed at 20% = €8,800
• The remaining €6,000 is taxed at 40% = €2,400
• Total tax before credits = €11,200

What Are Tax Credits?

Once your tax is calculated, you get tax credits that reduce the amount you owe.

These are like discounts taken off your tax bill — not your income.

Most people are entitled to:

• Single Person Tax Credit = €2,000
• PAYE Credit (if you’re an employee) = €2,000

That’s a total of €4,000 in credits.

So going back to our example above:

• Tax before credits = €11,200
• Minus credits = €11,200 – €4,000 = €7,200 owed

What Is USC?

USC stands for Universal Social Charge. It’s a separate tax taken from your gross income.

Even if you don’t pay income tax, you might still pay USC.

Here are the 2025 USC rates (for most people):

• 0.5% on the first €12,012
• 2% on the next €15,370
• 3% on the next €42,662
• 8% on income above €70,044

If you earn less than €13,000 a year, you don’t have to pay USC at all.

Tip: If you’re working part-time during school or college, you probably won’t earn enough to pay USC — but it’s good to know about it for the future!

What Is PRSI?

PRSI stands for Pay-Related Social Insurance. It goes towards your social welfare benefits like:

• Jobseeker’s allowance
• Maternity/paternity benefit
• Your future State pension

Most employees pay 4.1% PRSI, once they earn more than €352 per week.

If you're earning less than that, you may not have to pay PRSI at all — or you may pay a reduced rate.

The PRSI rate will increase to 4.2% on October 1st 2025.

A Simple Example – What’s My Take-Home Pay?

Let’s say you earn €30,000 a year from your first full-time job.

Here’s how it breaks down:

• Income Tax:
  €30,000 is all under the 20% band → 20% of €30,000 = €6,000
  Minus credits (€4,000) → €6,000 – €4,0-0 = €2,000 tax owed
• USC:
  First €12,012 @ 0.5% = €60.06
  Next €15,370 @ 2% = €307.40
  Remaining €2,618 @ 3% = €78.54
  Total USC = €446
• PRSI:
  4.1% of €30,000 = €1,230

Total Deductions =
€2,000 (tax) + €446 (USC) + €1,230 (PRSI) = €3,676

Net Pay (Take-Home Pay) =
€30,000 – €3,676 = €26,324

You can run this calculation based on your own salary for free using our net income calculator.

Final Thoughts

Yes, the numbers might look a bit scary — but once you understand how tax is calculated, it’s a lot less intimidating.

The key takeaway? You only pay higher rates on the portion of income above the thresholds — and tax credits reduce what you owe.

In our final post of the series, we’ll tell you all you need about taxes if you are thinking of earning income by starting your own business!

See you in Part 4!