[arvindch]

It's not set by the employee, rather the employer looks at expected income for the year and withholds accordingly. At the end of the financial year, the Tax dept. does a final calculation and if the amount was too high/low, they send you a notice.

Tax deduction at source is a common concept in a lot of countries, incl. dissimilar ones like India and the NL, where I have both worked. Super convenient and frictionless for the vast majority of employees.

[vonmoltke]

> It's not set by the employee, rather the employer looks at expected income for the year and withholds accordingly. At the end of the financial year, the Tax dept. does a final calculation and if the amount was too high/low, they send you a notice.

That's my question, how does an employer or taxing authority know what that amount is? My employer doesn't know my withholding status until I tell them via a W-4, and that doesn't take into account how the appropriate amount to withhold may change due to my spouse's income. Is the taxation scheme just different in most European jurisdictions?

Edit: corrected a brain fart (see below)

[Macha]

Withholding =

(Taxable income in each bracket * tax rate for each bracket) - (annual tax credits / number of annual payments from your employer).

If you're married and want to be taxed as a couple, you simply send the documentation as such to the tax office after your wedding.

You can tell your employer and they'll try adjust appropriately in payroll, or you can not tell them and the government will send you a tax refund at the end of the year for the partner with the higher tax bracket. It's optional to be taxed as a couple, so presumably you're opting into it because it will reduce your tax obligations, so there shouldn't be a case where you have to pay more because you're married. The same applies for tax credits that you don't want to tell your employer about.

[vonmoltke]

> If you're married and want to be taxed as a couple, you simply send the documentation as such to the tax office after your wedding.

So that's one difference. I have never sent the IRS proof of our marriage, and they have never requested it. I simply updated my wife's name and our filing status in the year we got married.

> (Taxable income in each bracket * tax rate for each bracket) - (annual tax credits / number of annual payments from your employer)

> You can tell your employer and they'll try adjust appropriately in payroll, or you can not tell them and the government will send you a tax refund at the end of the year for the partner with the higher tax bracket.

I'm confused by this. Are tax brackets always individual in Ireland? The reason I need to specify additional withholding is because each of our income withholding calculations starts from the lowest bracket and tops out at a bracket below our actual top marginal rate, which is determined by adding our incomes.

[lozenge]

It's achieved in three ways

1) far less deductions/carve outs in tax law, or ones that people can use without contacting the tax service. Eg pensions and charity contributions deducted by employer, so tax is calculated. Charity contributions paperwork for one off donations dealt with by the charity (Gift Aid scheme)

2) "tax code" five digits representing your tax status, that the tax office will give your company to update calculations when your status changes. Possibly starting from a phone call from you. Eg using marriage tax laws.

3) tax summary P60/P45 provided by your last employer(required by law) that you can give your next employer so they calculate correctly

Sounds complicated, but it's all geared towards moving the burden to employers who just pay for payroll software, for everybody else it is very simple.

[Macha]

So let's simplify the numbers a bit compared to the actual system:

The tax rates for a single person will be:

30000 @ 20%

remainder @ 50%

You earn 40000. Your spouse earns 20000.

Example 1:

You are taxed seperately. Your employer takes 11000 of your gross and sends it to the government. Your spouse's employer takes 4000 of their gross and sends it to the government. Your total tax payment is 15000.

Example 2:

You opt in to join taxation. Your employers have no idea you are married, but the tax office does (because you sent them documentation to opt in for joint taxation). The government then assesses your tax as a couple and realises your joint income falls into the lower tax bound, and your tax should only be 12000, but you paid 15000. You get a refund of 3000.

Example 3:

Same as above, but you tell your employer. You can add up to min(26300, spouse's income) to your standard rate tax bracket. Your spouse needs to inform their employer to deduct the same from theirs. You tell your employer you are transferring 10000 from your spouse's tax bracket to yours.

Your employer's payroll now works out your tax as 40000 * 20% = 8000. Your spouse's employer works out their tax as 20000 * 20% = 4000. You pay 12000 exactly.

Example 4:

Same as above, but only one of you informed your employer, you committed tax fraud, your employer filled out the form wrong, whatever. You get a tax bill for however much under your tax liability as a pair that your combined tax payments were.

Example 5:

Your income is 25000, your spouse's income is 25000. Regardless of whether you are assessed individually or seperately, your tax is 10000. Your employers deduct 5000 each.

Of course, there's various tax credits you can apply for and you can inform your employer to deduct them from your payments or apply for them at end of year from the government. These can only decrease your tax bill, not increase it, so I'm not sure how you'd end up with an unexpected bill. There's also a higher base standard rate for married person to compensate for not being able to completely share your tax bands for the year (a measure intended to gain some extra tax income from couples with one high earning person and one person with a very small income, I guess).

[sokoloff]

> The IRS doesn't know my withholding status until I tell them via a W-4,

You don't send the W-4 into the IRS; you give it to your payroll department.

[vonmoltke]

Correct. I was changing my thought mid-sentence from "filing status" to "withholding status" and didn't correct the beginning.