Tax on annual bonus

[gitbrutus]

Hello,

my 2021 annual bonus will be paid in january 2022. I will be taxed on 50%+ since my yearly income is in the high tax bracket. However, would I still have to pay the 50%+ on the bonus if my total 2022 income (excl. bonus) will stay in the lower tax bracket (e.g. I only work 1 month in 2022), or would the bonus be taxed with less than 50%+ retrospectively (refund)? To illustrate with example numbers:

• 2021 total income: 100.000
• 2021 bonus (paid in january 2022): 15.000
• 2022 total income: 10.000 (or 25.000 with the 2021 bonus)
• = how much tax to pay in 2022?

Thanks,
Git

 

[moneymakeover]

I guess if you quit working after January having earned total 25k
You won't hit the high tax bracket

 

[Protocol]

The PAYE system is cumulative.

If your wages from Feb 2022 begin to fall, and be much lower than the Jan 2022 wages, then the high tax paid in Jan 2022 will slowly be partly paid back to you.

 

[gitbrutus]

Thanks for your replies. I guess the part I don't fully understand is why the bonus is taxed with 50%+ in the first place, or how this is calculated at all? Since the low tax bracket is 20%, the high tax bracked is "only" 40%, and the payment in january 2022 is probably not connected to the 2021 total income?

So if my total income in 2022 would be 25.000 (15.000 bonus + 10.000 "regular"), would I eventually pay only 20% on all of it?

 

[Protocol]

In Jan 2022 nobody knows how much you are going to earn in 2022.
The tax credits and SRCOP are divided per month.

The SRCOP is about 3k per month, for a single person.


Yes, eventually, if your total income is 25k, you would pay 20% on that, and then deduct the tax credits.

 

[gitbrutus]

Ok that means the bonus is not considered any different than regular income? Then why is the bonus taxed 50%+ in the first place if the high tax bracket for my regular income is 40%?

 

[newirishman]

Ok that means the bonus is not considered any different than regular income? Then why is the bonus taxed 50%+ in the first place if the high tax bracket for my regular income is 40%?

40% income tax, 4% PRSI, (up to) 8% USC
Therefore total of 52% deduction.
So technically the tax rate is 40%, but deductions are higher.

Edit: and no, bonus is no different than regular income
Edit2: mixed up PRSI and USC rate

 

[Protocol]

Income is income.

Wages, overtime, bonus, rents, profits - they are all income.

40% income tax
4% PRSI

USC is complicated, with rates as follows:

Standard rates and thresholds of USC for 2021

2021	Rate
First €12,012	0.5%
Next €8,675	2%
Next €49,357	4.5%
Balance	8%

 

[gitbrutus]

Thank you, that explains it!