Irish workers often find themselves grappling with high tax rates, especially when the income threshold for higher tax rates is relatively low. In 2024, workers earning over €42,000 will find themselves taxed at a rate of 40%. Ireland’s tax system is progressive, meaning higher earners pay a larger proportion of their income in taxes compared to lower earners. While this system promotes wealth redistribution, it can also leave many in what’s called the “squeezed middle class.” Fortunately, there are strategies available for employees to lower their tax liabilities and potentially reclaim overpaid tax. Here’s a look at three effective ways to reduce the amount you pay.
1. Pension Contributions: A Tax Break You Shouldn’t Miss
One of the most effective ways to reduce your tax bill is through pension contributions. In fact, contributing to a pension is arguably the most tax-efficient strategy available to employees in Ireland. The government provides significant tax relief to encourage workers to save for retirement, allowing you to reduce your taxable income by contributing to a pension.
When you contribute to a pension, you receive income tax relief at your highest rate. For instance, if you’re earning €75,000 and contribute €10,000 to your pension, you’ll save €4,000 in income tax, as that contribution is deducted from your taxable income. This means you effectively turn €6,000 (after tax) into €10,000 by choosing to invest in a pension.
This is essentially an automatic return of 67% on your investment, as pension contributions are made before tax. In comparison to regular investment returns—like the average 10.5% annual return of the S&P 500—this is an exceptional tax-saving opportunity. The more you contribute, the more you save, both in terms of tax and in building your retirement fund.
2. Employment Investment Incentive Scheme (EIIS)
Another tax-saving opportunity available to Irish workers is the Employment Investment Incentive Scheme (EIIS). The EIIS encourages taxpayers to invest in certain Irish companies, particularly startups and early-stage businesses, by offering significant tax relief on the investment.
Recent changes to the scheme, effective from January 1, 2024, introduced various levels of tax relief depending on the type of business and the stage of investment. For example, businesses that are pre-revenue and in the early stages can offer up to 50% tax relief on investments. Investments in more established companies or those expanding into new markets can offer tax relief ranging from 20% to 35%.
The maximum amount you can invest in EIIS companies is €500,000 per year, with a four-year holding requirement. If you’re a high-income earner or simply have surplus cash, investing in EIIS can be a great way to reduce your tax burden while supporting Irish businesses.
3. Engage with MyAccount to Claim Tax Refunds and Reliefs
Finally, one of the simplest ways to reduce your tax is by ensuring you’re not overpaying in the first place. The Irish Revenue’s MyAccount portal offers a range of tools to help you manage your tax affairs and claim any refunds you’re entitled to. Regularly reviewing and engaging with your MyAccount can uncover opportunities to claim back tax overpayments or access tax reliefs you might have missed.
Through MyAccount, you can request a Statement of Liability, which will help you determine if you’ve overpaid income tax or Universal Social Charge (USC) in previous years. If you’ve overpaid, you can receive a refund. Additionally, you can file a PAYE income tax return, which lets you claim tax credits, reliefs, and deductions for items like rent, mortgage interest, medical expenses, and more.
For example, if you’ve incurred health expenses or have unused tax credits, MyAccount will allow you to submit these claims, reducing your overall tax liability. You can also declare any extra income you’ve earned, such as from non-Irish savings accounts, which is especially important as many international banks do not automatically deduct Deposit Interest Retention Tax (DIRT).
Conclusion
There are several ways to reduce your tax burden as an employee in Ireland, from contributing to a pension and making the most of the Employment Investment Incentive Scheme, to ensuring you’re claiming all the tax reliefs and refunds available to you via MyAccount. By taking proactive steps to manage your tax obligations, you can potentially save a significant amount of money, leaving you with more in your pocket and less going to the taxman.
Whether it’s building your pension for the future or investing in Irish startups with tax relief, taking advantage of these strategies can make a real difference to your finances. If you’re unsure how to start or would like help navigating the tax system, consulting with a financial advisor is a great next step.