Budget 2026 is Almost Here - Are You Claiming All Your Tax Reliefs?

How is my Income Tax Calculated and am I optimising my Tax Credits?

Understanding how your income tax is calculated and whether you're making the most of your tax credits is essential for keeping more of your hard-earned money. Whether you're a PAYE employee, self-employed, or juggling multiple income sources, we set out below some basics and give you examples on optimise the income you take home.

How Income Tax Is Calculated

In Ireland we use a progressive tax system, meaning your income is taxed at different rates depending on how much you earn. Here's how it works:

1. Determine Your Gross Income

This includes salary, rental income, dividends, and other taxable earnings.

2. Apply the Tax Bands

For 2025, the standard rate cut-off point for a single person is €44,000.  This means that income up to €44,000 is taxed at 20% (the standard rate) and income over €44,000 at 40%.  This tends to be reviewed annually and any changes announced in the budget.  Budget day announcements in Ireland will be made on Tuesday 7^th October for 2026.

For jointly assessed couples you may be able to share some of your standard tax band up to a maximum of €88,000 and also some of your tax credits.

Here’s an example:

If you are a single person earning €45,200 before tax each year:

• €44,000 × 20% = €8,800

• €1,200 × 40% = €480

• Total tax (before credits and reliefs) = €9,280

3. Subtract Tax Credits & Reliefs

Tax credits directly reduce the amount of tax you owe. Common credits include:

·        Single Person Tax Credit: €2,000

·        Employee (PAYE) Tax Credit or Earned Income Credit (for self-employed): €2,000

·        Total credits: €4,000

·        Tax due: €9,280 – €4,000 = €5,280

4. Add USC and PRSI

These are additional charges:

• Universal Social Charge (USC): Progressive rates from 0.5% to 8% depending on income level.  If you earn less than €13,000 a year you may be exempt from USC.

• PRSI: Typically 4% for most employees and self-employed.  If you are an employee your employer will also pay a level of Employer PRSI which is dependent on your level of earnings.  This employer PRSI will entitle you to be considered for state benefits such as unemployment benefit, disability benefit etc.

Are You Optimising Your Tax Credits?

Many taxpayers miss out on valuable credits and reliefs simply because they don’t know they exist or haven’t updated their details with Revenue. This is money due to you, here’s how to make sure you’re not leaving money on the table:

Commonly Missed Tax Credits

·        Rent Tax Credit: €1,000 (single)/ €2,000 (couple)

·        Home Carer Credit: €1,950 if you care for a dependent and earn under €7,200

·        Single Person Child Carer Credit: €1,900

·        Incapacitated Child Credit: €3,800

·        Age Tax Credit: €245 (single) / €490 (married)

·        Dependent Relative Credit: €305

Are You Claiming All Your Tax Reliefs?

Certain payments are also eligible for relief from tax and examples include:

·        Certain qualifying health expenses like doctor bills, prescriptions, special dietary expenses for diabetes or coeliacs.

·        The cost of income protection plans (subject to annual limits).

·        Pension contributions: The cost of employee contributions or additional voluntary contributions (subject to annual limits).

·        Qualifying third level fees.

·        Remote working relief – a portion of the cost of your household broadband, electricity and gas bills if your employer does not provide a remote working payment.

Some of these are relievable only at the standard rate of 20% and some at 40%.

Tips to Optimise

myAccount portal

·        Use Revenue’s myAccount portal to view and manage your Tax Credit Certificate.

·        Claim medical expenses and other reliefs under tax allowances.

·        Review your credits annually, especially after life changes like marriage, children, or bereavement.

Four year rule – have you missed out on claiming reliefs and credits previously?

You can also claim back refunds for previous years if you have not already done so, however the limit for this is four years, meaning you can only request reviews or claim refunds for the last four years. For example, claims for 2021 must be made by 31 December 2025. Claims made after this time cannot be repaid.

Summary

Tax doesn’t have to be a mystery but by understanding how your income tax is calculated and actively managing your tax credits, you can reduce your liability and improve your financial health.

Think of tax credits and reliefs as your reward for being informed and taking action.

 Budget 2026 - Are You Claiming All Your Tax Reliefs?

Sources:Revenue.ie – How Tax Credits WorkCitizens Information – Income Tax Case Study

Warning! The contents of this blog are provided for informational purposes only and are not to be regarded as constituting tax advice.  Independent tax advice specific to your circumstances should be sought.