10 ways you may have paid too much tax
By not claiming back all the available tax credits, many of us are letting the taxman keep too much of our money
Stop button: The evidence suggests that many of us are leaving too much money in the hands of Revenue in the form of unclaimed tax credits
If you feel like you paid too much tax last year, you are not the only one. Yes, 2015 was another year when the personal tax burden was high. And while people have seen an improvement in their January payslip, it may not be enough for many.
At the very least, then, people should ensure that they are claiming every relief and credit open to them. But the evidence suggests that many of us are leaving too much money in the hands of Revenue in the form of unclaimed tax credits.
Some credits, such as the PAYE tax credit, are given automatically. Other you have to claim for, such as tuition fees, rent relief and trade union fees, as well as those outlined below. Remember: claims can date back four years, so just because the situations outlined below don’t apply to you now, you might be able to claim for previous years.
So if you fancy a little windfall, here are 10 ways in which you may have paid too much tax last year and may now be entitled for a tax refund.
1. Forgetting about rental tax credit
With more and more people renting, and the cost of doing so continuing to rise, anything that can help reduce these costs is welcome. The good news is that there is a tax credit that can be used to offset the cost of rent. The bad news is that Revenue has tightened up the rules considerably, and the credit will be phased out by 2017.
To claim, you must have been in rental accommodation on December 7th, 2010. If you have only started renting since that date, you won’t be eligible. However, if you have been renting since before that date, and have never claimed the credit, you could be in line for a small windfall.
Until 2014, the relief was granted at 20 per cent on up to €800 for a single person under 55 (€1,600 for a married couple) and €1,600 for those over 55 (€3,200 for a married couple). The relief was reduced in 2015 to €600 for those aged under 55 and €1,200 for those over 55.
So, under the four-year rule, a single person renting since 2009 should be able to claim back about €600 (€160 for 2012, 2013 and 2014, and €120 for 2015). Someone over 55 could claim back €1,200.
2. Taking maternity leave
In years gone by, women returning from maternity leave were able to benefit significantly from unused tax credits from their time out of work. This was reduced in July 2013, when maternity benefit became taxable, though it may still pay for women to check their tax credits.
“When you come back from maternity leave, what happens is you’re put back on a week one basis,” says John O’Connor of Red Oak Tax Refunds. This might mean that you won’t get all the tax credits for the year, he notes. “Once you’re on a week one basis, the chances are that you’ll have overpaid tax and will be due a refund.
3. Not adjusting tax after getting married
If you got married or entered into a civil partnership anytime within the last four years but didn’t notify Revenue, you may find that you have overpaid tax.
Once you’re married or are civil partners, you can share tax credits and have more of your income taxed at the lower rate, which can boost your take-home bay if you file as jointly assessed.
Whether it will benefit you typically depends on how much you both earn. It is often of most benefit when only one partner is working. Consider a couple where one person earns nothing and the other earns €50,000. If the earner kept paying tax as a single person, their annual take-home pay would be €35,415 after tax. If, on the other hand, they were taxed as a married couple, their take-home pay would jump to €38,865.
On the other hand, a couple who both earn €50,000 a year will only stand to benefit by €1 if they are jointly assessed. Typically, where two people are earning €34,000 a year or more each, there is no real benefit.
So do the maths before making the decision. But remember: if your circumstances change, such as one partner no longer working, it is possible to then readjust your tax credits.
If you got married in 2015, you may also be due a partial refund, if your circumstances are similar to the example outlined above. Refunds are due from the date of marriage and calculated after the following year-end, so if you got married in June 2015, you may be due a refund of tax from June-December 2015. You can claim this now.
4. Health insurance
If you buy health insurance for yourself, you benefit from tax relief at a rate of 20 per cent on the cost of your premium, reducing the cost to you. So for example, a €1,000 annual payment to the VHI will cost you €800, which is the same as giving tax relief at the standard rate of tax (20 per cent).
If, however, your employer pays for private health insurance on your behalf, you will not have been allowed tax relief at source and will incur a benefit-in-kind charge on the cost of the premium, which means that you can still claim your medical insurance tax credit.
Remember, though: since 2013, you can only claim tax relief on medical insurance premiums on the first €1,000 per adult, and the first €500 per child.
5. Not claiming flat rate expenses
Did you know that if you’re an engineer, electrician, nurse or teacher, you can claim back an annual expense allowance to cover essentials such as uniforms and tools of your trade that are not normally covered by your employer?
Flat-rate expenses apply to a wide range of professions. In addition to those mentioned above, these includes doctors, clergymen and those working in the hotel industry.
If you’re a teacher, you are entitled to an annual allowance of €518, or €279 if you work part-time. If you’re a dentist, you can get an allowance of €376. Musicians in the RTÉ National Symphony and Concert Orchestras benefit from one of the most generous allowances, at €2,476.
To see if your profession qualifies for such a deduction, go to http://tinyurl.com/ gnlxnp9 or check the Revenue website.
6. Not claiming back DIRT
If you or your spouse recently turned 65 and are within certain income limits, you shouldn’t be paying Dirt at a rate of 41 per cent on any income earned on deposits. This means that you could be due a refund.
And it’s not just over-65s who don’t have to pay Dirt. First-time buyers can also claim back Dirt on savings for a deposit for their house. While not many have (figures for last year show just 74 claims were made), with some €74,880 refunded, it shows that the average refund was of the order of €1,000.
7. Staying at home – but forgetting the tax credit
If you or your partner lost your job, or decided to take some time out of the workforce to care for children or an elderly relative, a tax credit can be given to the working spouse to help ease the financial burden. And the credit has just become more attractive.
A change in Budget 2016 means that the Home Carers’ Tax Credit can be claimed in circumstances where the stay-at-home partner, who is caring for a dependent person such as a child or elderly relative, doesn’t earn more than €7,200 in one year.
Prior to 2016, the amount that could be earned was restricted to €5,080. And the credit has also been increased, from €810 to €1,000 in 2016.
If the stay-at-home partner’s income is in excess of the limit, the credit may still be of use, as long as it doesn’t exceed €9,200, as the difference between the actual income and €7,200 is calculated and then halved.
So, for example, someone earning €7,450 will get a tax credit of €875, while someone earning €8,950 will get a tax credit of €125.
Figures show that 81,000 taxpayers benefited from this relief in 2015, but it is estimated that far more people should be entitled to it.
8. Protecting your income – but not claiming your relief
Many of us take out income protection policies for some protection in the event that we lose our income due to accident, injury or sickness. Unlike a critical illness policy, which pays out a lump-sum in the event of a major illness, tax relief is payable on monthly income protection premiums, provided that the policy is approved by the Revenue as a Permanent Health Benefit Scheme.
Relief is granted at your highest rate of tax, up to an annual limit of 10 per cent of total income, as long as you are paying the premiums yourself.
So, for example, a 30-year-old male civil engineer who is paying €56.51 a month for cover of €25,000 (50 per cent of income), should only be paying €33.34 a month, once tax relief is factored in.
9. Paying too much USC
The universal social charge is a scourge for many, but some may be paying too much of it. If, for example, you received a full medical card in recent years, you may be eligible for a lower rate of USC. But the only way of getting it is by notifying Revenue of your change in circumstances.
If you had a full medical card in 2013, the maximum USC you could be charged was 4 per cent, regardless of your income. For 2014, those medical card holders earning less than €60,000 only had to pay USC at 4 per cent (the normal rates apply above €60,000).
For 2015, the rate for those with earnings of less than €60,000 fell to 3.5 per cent on earnings above €17,576.
This year, the chargeable USC rate on earnings of €18.668-€60,000 has fallen to 3 per cent.
Once Revenue is aware of your medical card, it will issue a revised tax credit certificate to your employer. Any refund due will be automatically made by your employer. Remember however, that Revenue receives files from social welfare in November and December of each year, so you may have to wait to get the benefit of the lower USC rate.
“If it’s your first time getting a medical card, you’re not automatically going to get the benefit of a medical card in your pay in your first year,” says O’Connor.
10. Paying full price for your commuting costs
If you use the bus, Luas or rail services to get to work every day, you could significantly save on your costs by buying a taxsaver commuter ticket through your employer. This can help allay the increasing cost of transport.
Under the scheme, you are entitled to receive annual, monthly and part-yearly (Bus Éireann only) commuter tickets free of tax and PRSI as part of your salary package. The only caveat is that to claim tax relief, the ticket must be purchased through your employer. The savings are significant, especially given the increases in the overall tax burden due to the universal social charge.
For example, an annual Dublin Bus ticket will set you back €1,320. If you pay tax at the standard rate, however, you can save €389.40 by buying it through your employer, or €653.40 if you pay tax at the higher rate.
Or how about an annual bus ticket for, say, Limerick city? At a total cost of €790, you could save more than €200 a year by applying for the scheme if you pay tax at 20 per cent, or €391.05 for higher rate taxpayers.