Effective tax rate?

M

Maybrick

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Hi all - a question about the effective tax rate for middle-income earners.

In Vincent Browne's Irish Times column this week, he has this to say:

"Just focus on those being paid between €50,000 and €80,000 a year (and this includes couples who jointly earn these amounts). The average pay of those in this bracket is about €62,500, which is more than double what 55 per cent of people in this society are paid (not counting social welfare payments). These in this bracket pay just 23 per cent of their total income in income tax, including the universal social charge."

This confuses me, because I am currently doing my tax return and, according to my calculations, I have to pay over 26,000 on an income of 78,000 - that's more than 33 per cent.

Is Vincent talking nonsense or do I need to do my sums again?
Any help appreciated - thanks.
 
What would you be paying if you were earning 62,500? It isn't a constant percentage across the range.
 
Yes, I know - but is it really just 23 per cent for someone on 62,500 and 33 per cent for someone on 78,000? That's quite a jump.
 
you are right regarding your total deuctions assuming tax,USC and normal credits -about 34%. those on 62.500 lose ca. 24%
 
Thanks Oldnick - I was desperately hoping I might have missed something, but I think you're right.

So Vincent Browne is wrong to lump people between 50k and 80k into the same bracket, there is actually a huge difference in the overall percentage of your income that you pay?
 
Whats the line about statistics. "Lies, damned lies, and statistics"
From http://taxcalc.eu/

Single PAYE worker in 2011,
Gross Total Taxes
50,000 14,867 29.73%
60,000 20,067 33.44%
70,000 25,267 36.10%
80,000 30,467 38.08%
 
Thanks Joe. So how does Vincent Browne get away with saying this?

"People earning €80,000 and over each year get one-third of all income paid in this society, although they amount to only 9 per cent of all people who pay tax. And what tax they pay, even after the 7 per cent universal social charge is taken into account, amounts to only 33 per cent. All the palaver about the rich paying tax at over 50 per cent is just wrong, the top 9 per cent of earners pay only 33 per cent on average."

Where does Browne get this from? According to your figures, someone on 60k is already paying over 33 per cent and by the time you get to 70k it's risen to over 36 per cent.
 
To quote the article:
These figures are extrapolations of data compiled by the Revenue Commissioners. The data is of tax cases, rather than individuals – some couples present their tax returns together and they are regarded as cases. The data is the estimate by the commissioners of the income earned by all income tax payers (or cases) for the current year, 2011. It is compiled to estimate the expected revenue from income taxes.
 
joe90 - looking at the tax take figures . I'm in rush to work them out- but they seem a bit high by 2/3 % .
 
sorry,joe, about my last post. Yes, these figures are correct - and higher than I imagined for single people.
Should not OP now immediately marry another single high-earner, so they both save money ?
 
Thanks for the suggestion, Oldnick - actually, I am married to someone earning around 35k! So I save a little on tax credits, but not very much.
 
The Revenue figures quoted are also the net taxes after any pension tax reliefs or other tax reliefs - so someone might pay 33% income tax but if they make a pension contribution and get tax relief, the overall effective tax rate goes down. Things like the artists exemption might also bring the effective rate down. That's why the effective tax rate, particularly at the very high end, can seem low compared to scheduled rates - the more tax reliefs that apply, the lower the effective rate. I would take the view that the answer to that is to stop as many tax relief schemes as possible rather than charge more tax that most people will pay but that can still be avoided by others.
 
Thanks Orka, that certainly helps to explain things.

However, I have another dilemma - I am now trying to calculate preliminary tax for 2011 and finding that on a projected income of around 70,000, my overall bill is just over 26,000. That's perilously close to an effective tax rate of 38 per cent - and while I knew things were bad, I didn't think they were that bad.

Does this seem accurate or am I making some mistake?
 
maybrick - the figures shown in a previous post based on taxcalc.eu (there are othr guides you can google) are correct. You are losing over 36% of your 70k salary.

I was also slightly surprised at first glance ,as I have been out of business a year and until then I had done the tax for staff. But a quick check of the rates show that taxcalc.eu is right - the main extra shock coming from the horrible USC charges this year.

But you say your wife earns 35k.
If you combine incomes and apply as a married couple then - again check with calculator- then I'm sure your total tax will be down a few percent -to about 33%.
Haven't checked it . But one -tird ain't too bad.

---

I assume you are both PAYE workers and not self-employed.i.e. you each get 3.300 credits.
What do you mean by "preliminary tax" ?
 
Oldnick - no, unfortunately I am self-employed so I don't get that much tax credit. That's why I'm now calculating my preliminary tax and getting a bit of a nasty shock - like thousands of other people, I suspect. You're right, the USC really is a killer...
 
Ah,maybrick, i understand and sympathise.
I was a self-employed taxpayer for 30 years and it bugged me that we never got the employee credit which, when top rate was 50% and the allowance was slightly bigger cost me about 800 euros extra tax over employees, and which is still costing you 41% of 1650 - €676 per year.
That's besides the lack of redundancy payment, the dole, sick-pay etc. (And ,I've only just realised,though have'nt understood this, I don't get state pension till 66 rather than 65 -though i wonder if I erred on this.)
Anyway I'm going off topic ...
Cheers Old Nick.
 
Looking at my final 2010 payslip I tallied my cumulative PAYE, PRSI + health levy and income levy deductions and together they come to 23% of my gross. A lot may depend on personal circumstances - e.g. I maximise pension contributions which has a significant impact on the effective rate of deductions.
 
selfassessed said:
What would you be paying if you were earning 62,500? It isn't a constant percentage across the range.
Click to expand...
No - depends on personal circumstances (e.g. married or single, what pension contributions are made, what specific tax credits you qualify for etc.).
 
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