Who pays the Income Tax?

The Revenue Commissioners have released the “Income Distribution Statistics” section of their 2009 Statistical Report.  This part of the report gives details of income and income tax payments across the income distribution.  The 2009 Report gives the figures for 2007 and 2008.  We will look at the 2008 figures here with these details taken from Table IDS1 on page 31.

First up here is the breakdown of the number of tax cases in each income bracket.

In 2008 the Revenue Commissioners handled over 2.3 million tax returns.  Of these, 432,058 were joint returns by couples with two earners, so the number of earners is actually over 2.7 million.  There were 379,541 returns from couples with one earner and 1,521,624 individual tax returns.

It is also important to note that this total included all income earners and not just those in employment.  The income range with the greatest number of cases is €0 - €10,000 which accounts for nearly one-fifth of the total number of cases.  This is may include part-time workers but also non-workers with a source of passive income (interest, dividends, rent etc), particularly retired people.  The CSO’s QNHS suggests that there was an average of 2.1 million in employment during 2008, though some people could have entered and left this total as the year progressed.

Here is the income earned in each of these income ranges.

In 2008 there was €90.8 billion of earned income declared to the Revenue Commissioners.  The pattern of the average income and cumulative average is as would be expected.  Tax cases in the “over €275,000” range make up 0.6% of the total number of cases and earn 8.1% of total income.  These cases reported an average income of over €560,000.

Next we turn to the tax paid across the income ranges.

There was a total of €12.2 billion of income tax paid on the €90.8 billion of income earned.  The 0.6% of tax cases in the top income category, with 8.1% of the income, paid 17.5% of the total income tax.  The 54.0% of cases below €30,000, with 26.7% of the income, paid 5.0% of the total tax.

Finally we’ll look at the effective tax rates and average amount of tax paid.

The Irish income tax system is progressive across all income ranges.  The highest effective tax rate of the 28.0% paid by those in the top income category.  Across all incomes the average income tax rate is 13.5%.  Again it is important to note that this is not the average tax rate on workers as all earned income is included in this total.

The very low rates of tax on incomes below €20,000 can be seen.  Incomes in the “€17,000 - €20,000” range faced an effective tax rate of 0.66% and paid an average of €121.44 in tax or €2.34 per week.  Earners in the top income range faced the 28.0% effective rate and paid an average of over €157,000 in tax – just over €3,000 per week.  There is a 30-fold difference in the average income earned in these categories and a nearly 1,300-fold difference in the amount of tax paid.

In 2008 a tax case in the “€30,000 to €35,000” faces an effective tax rate of 5.8% and paid an average of nearly €1,875 in tax for the year.  If this is a family with two children they will have collected €3,888 in Child Benefit.  The State will have given them more in income than it collected from them in income tax. 

This gap would have narrowed since 2008 with reductions in Child Benefit and changes to income tax bands and credits and the introduction of the Universal Social Charge.  It is also important to note that this analysis only includes income tax and ignore social insurance contributions (PRSI) and indirect taxes (VAT and Excise Duty).

A spreadsheet with that data used in this post is available here.