New Earned Income tax credit

October 2016

Question

I am self-employed and make a tax return each year. What is the new tax credit for self-employed people? How do I apply for it?

Answer 

From 1 January 2016, a new Earned Income tax credit of €550 is available for self-employed people (in addition to the normal personal tax credits and other reliefs). Proprietary directors who are not eligible for the PAYE employee tax credit can also claim this credit.  

This Earned Income Tax Credit is calculated at 20% of your self-employed (or earned) income. It does not include any earned income that is taken into account for the PAYE employee tax credit. Note that if you also qualify for the PAYE tax credit, the combined value of both tax credits cannot exceed €1,650.  The maximum relief for 2016 is €550. However, if your earned income is below €2,750, the tax credit is restricted to 20% of the income. For example, if your total earned income is €2,000 your maximum tax credit is 20% of this or €400.

As a self-employed person you pay tax under the self-assessment system. Under this system (known as "Pay and File") you must file your return, complete a self-assessment, and you must pay the balance of tax outstanding for the previous year. At the same time, you must pay preliminary tax (an estimate of tax due for your current trading year) for the current year. When you pay preliminary tax for 2016 you can include the Earned Income tax credit in your calculations. However the new Earned Income tax credit is not available for the 2015 tax year.

The date for payment of tax and filing of returns is 31 October each year. For 2016, if you file your tax return online using the Revenue Online Service (ROS), the due date is extended to 10 November 2016.