Deductions on income A deduction is an amount of money taken from your income. All deductions can be divided into two categories: Statutory deductions


Compulsory deductions which must be paid. These are calculated on gross income.


Examples: ● ●


● Income tax


Pay-Related Social Insurance (PRSI) Universal Social Charge (USC)


Pay-Related Social Insurance (PRSI)


PRSI is made up of social insurance and health contributions. The social insurance part goes to funds to pay for social welfare and benefi ts in Ireland. The health contribution part goes to the Department of Health to help fund health services in Ireland. The amount of PRSI an employee pays depends on how much they earn and is calculated as a percentage of their gross earnings (earnings before tax has been deducted). The employer will also pay a contribution to the employee’s PRSI payment.


Universal Social Charge (USC)


The Universal Social Charge is a tax payable on gross income. USC is charged at diff erent rates which increase as the level of income increases. The rates for USC can be changed annually in the budget and so, when a question involves USC, you will be told the rates to use.


Worked example 1


Brona earns €58 000 per annum. She pays income tax at the standard rate of 22% up to the standard rate cut-off point of €33 800, and then pays income tax at the rate of 42% on the remainder of her salary. She has an annual tax credit of €1 680. Calculate:


(i) the gross tax Brona must pay (ii) the net tax due (iii) her net income.


Solution (i)


Statutory means ‘required by law’. Non-statutory deductions


Voluntary deductions which the worker can choose to pay or not pay.


Examples: ● ●


● Pension contributions


Trade union subscriptions Health insurance payments


(ii)


(iii)


Section B Advancing mathematical ideas


277


17 Managing your money


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