Payroll Deductions - PAYE – BrightPay

The Pay As You Earn (PAYE) system is a method of tax deduction under which an employer calculates and deducts any income tax due each time a payment of wages, salary etc. is made to an employee.

The PAYE system of tax deduction applies to all income from offices or employments (including directorships and occupational pensions) other than a few isolated cases where the employers concerned are given special instructions.

Apart from the following:

Ordinary Superannuation Contributions
Additional Voluntary Contributions
Revenue Approved Permanent Health Deductions
Personal Retirement Savings Accounts (PRSA)
Retirement Annuity Contracts (RAC)
Salary sacrificed for a travel pass scheme or Cycle to Work Scheme

No other deductions made from pay should be taken into account in calculating employee taxable pay subject to PAYE.

An employee may claim a tax credit from Revenue for expenses that are wholly, exclusively and necessarily incurred in the performance of the duties of the employment. If due, it will form part of their tax credits and standard rate cut off point and will not reduce the employee's taxable pay as already calculated.

Tax Credit

Each employee is entitled to tax credits depending on their personal circumstances, e.g. married person's or civil partner’s tax credit, employee (PAYE) tax credit, etc. These tax credits are used to reduce the tax calculated on an employee's gross pay. Tax credits are non-refundable. However, any unused tax credits in a pay week or month are carried forward to future pay periods within the same tax year. Week 1 or Month 1 of a new tax year should not have any additional credits or cutoffs unless there has been a change implemented by Revenue. After your tax is calculated, as a percentage of your income, the tax credit is deducted from this to reduce the amount of tax that you have to pay.

Standard Rate Cut Off Point (SRCOP)

Tax is charged as a percentage of your income. The percentage that you pay depends on the amount of your income. The first part of your income, up to a certain amount, is taxed at 20%. This is known as the standard rate of tax and the amount that it applies to is known as the standard rate tax band. The remainder of your income is taxed at the higher rate of tax, 40%. The amount that you can earn before you start to pay the higher rate of tax is known as your standard rate cut off point.

Tax Exemption and Marginal Relief

A small number of employees/pensioners are entitled to tax exemption and marginal relief each year. Any individual/married couple whose total income from all sources is less than or equal to the exemption limit appropriate to them will not have to pay tax for that year.

Any individual/married couple whose total income from all sources is over the exemption limit may qualify for marginal relief. This means that when their wages or pension exceeds a certain limit, they are taxed at 40% instead of the higher rate of tax in operation for that year (the higher rate of tax and the marginal rate of tax are the same for 2026). If the employee/pensioner is entitled to tax exemption and marginal relief, the higher rate of tax shown on the tax credit certificate will be 40%.

The decision regarding any individual's entitlement to exemption and marginal relief is made by Revenue - not by the employer. The employer must operate PAYE in accordance with the Tax Credit Certificate/RPN issued.

Basis to apply PAYE

PAYE can be deducted on any of the following calculation methods:

Cumulative
Week One/Month One
Emergency

Cumulative

Year to date calculation of tax which ensures that an employee's tax liability is spread evenly over the year. Each pay period tax deduction is calculated as the total tax due from 1st January to the date of payment and reduced by the amount of year to date tax previously deducted. This ensures that any tax credits and standard rate cut off point which are not used in a pay period are carried forward to the next pay period within that tax year. The cumulative basis facilitates the payment of tax refunds where due.

Week One/Month One

Each pay period is treated separately without any consideration of previous pay or deductions. The tax credits and cut off points are applied to each pay period and tax is deducted accordingly. No tax refunds may be made by an employer where this basis applies.

Emergency

An employer is obliged to operate emergency tax when they do not receive a Revenue Payroll Notification (RPN) for an employee.

RPNs will not be received when:

An employee has not provided their Personal Public Service Number (PPSN)

Employee is not registered for Pay As You Earn (PAYE)

Employees will automatically be registered for PAYE when they register a job or pension using the 'Jobs and Pensions' service.

Emergency Basis of Tax Deduction 2026

Calculating PAYE

The basic simplified steps to calculating the PAYE deduction are:

Gross Pay - Calculate the Gross Pay subject to PAYE
Gross Tax - Any pay less than or equal to the SRCOP, calculate at 20%
If the taxable Gross pay exceeds the SRCOP - calculate the balance of pay at 40%
Tax Credit - Reduce the Gross tax by the tax credit, reducing the tax payable
Balance - The remaining balance is the PAYE tax payable

FAQs Tax (PAYE)

Q. When an employee receives a tax refund, does the employer pay this back, or does Revenue handle it? How does this work?

A. When a tax refund occurs, it reduces the PAYE liability for that period. Essentially, the refund comes off the amount the employer owes to Revenue, so the employer is not paying the refund directly. Instead, it reduces the amount due to Revenue for that tax month.

Q. An employee has paid too little tax in a pay period. Can it be paid back monthly through their salary?

A. Sometimes, yes – but only in specific circumstances.

If, in a particular pay period, the total Tax/USC/PRSI due is more than the net pay (for example because of a large once‑off Benefit in Kind (BIK)), the employer must still pay the full amount due to Revenue for that period. In this case, the employer may agree a repayment plan with the employee to recover the underpaid amount from future wages over several pay periods.

In all situations other than the “insufficient net pay” scenario, tax is deducted in line with the employee’s tax credits and cut‑off points. If an underpayment or overpayment of tax has occurred, Revenue will usually issue a new tax credit certificate with adjusted credits and cut‑off points. Once this updated certificate is applied, Payroll will calculate tax accordingly in the next pay period.

If, however, an employee would end up with negative net pay, it may be advisable to contact Revenue to request an amended certificate, where appropriate.

Q. An employee's payslip was re-opened and the tax amount has changed. How do I manually override it to revert it back to the original amount?

A. The amount of tax due is automatically calculated by BrightPay based on the periodic salary details and the YTD information. There is no way to manually override the tax calculations or edit this on the payslip. The tax amount due can change after re-opening a payslip for a number of reasons including;

The payment amount was changed.
Benefit(s) have been added to the employee's record for that pay period (or a date which falls in an already closed pay period so there is now more tax due YTD).
No RPN was retrieved prior to finalising the payslip and now a new RPN has been received with the employee's correct tax credits and cut offs.
There was a RPN retrieved previously, but the RPN was re-run after re-opening the payslip and new credits and cut offs have been applied by Revenue (ie the new RPN now includes previous employment figures for the employee).

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Payroll Deductions - PAYE