As the old saying goes…“there are only two things in life you can’t avoid – death and taxes!”, but are you sure you’ve been claiming all the credits you’re entitled to?
2016 saw the introduction of the Earned Income Tax Credit. The credit, worth €550 in 2016, and €950 in 2017. It aims to reduce the disparity between self-employed and PAYE workers.
The credit applies to self-employed individuals and directors who cannot claim the PAYE credit.
Below we have outlined three of the most important points about the Earned Income Tax Credit:
1. No Salary = No Credit
If you are self-employed or a director, not entitled to the PAYE credit, then you may be entitled to the Earned Income Credit. However, to avail of the full amount of the credit you must take a salary of at least €4,750 in 2017. Anything less than €4,750 in 2017 may only qualify for a reduced tax credit.
2. PAYE Credit & Earned Income Credit
If you have PAYE income and self-employment/directorship income then the combined value of both tax credits cannot exceed €1,650, i.e. you cannot have the full value of both credits.
Where the spouse of a director of a company receives a salary from that company he/she is not entitled to claim a PAYE credit. However they may be entitled to claim the Earned Income Credit (see Example 1 below).
Example 1 – Spouses and tax credits
Joe and Mary are a married, Joe is a director of ABC Ltd with a 20% shareholding. Mary also works for ABC Ltd in payroll department.
Joe and Mary receive annual salaries of €70,000 and €45,000 respectively.
|Joe||Mary||Total Additional Credits|
|PAYE System||No credit||No credit||–|
|Earned Income Credit||€950 in 2017
€550 in 2016
|€950 in 2017
€550 in 2016
|€1,900 in 2017
€1,100 in 2016
If you or your spouse is a director of a company, without another source of income, you/they can take a salary from the company of up to €4,750 in 2017 completely tax free.
Unsure about your tax credit entitlements? Contact a member of our team here, they’ll be happy to help!