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Comparing Income Tax for PAYE Workers vs. Self-Employed

I am self-employed and I earn about €50k a year. Is this taxed differently to someone who is in a PAYE job and earning the same amount?

Updated 10 Jul 2025 | Published 6 Mar 2015

By Gearoid Condon, FCA 3 min read

Money can be confusing, but don’t worry I'll break this down in a way that’s easy to follow. If you're working in Ireland, whether as an employee (PAYE) or self-employed, the tax you pay depends on a few key factors. Let’s compare both setups using two different incomes: €50,000 and €100,000.
 

1. Comparing €50,000 Income for PAYE Workers vs. Self-Employed People

 
At €50,000, both employees and self-employed workers pay the same amount of tax. Here’s how it works:
 

A. PAYE Worker (€50,000)

  • You pay Income Tax at two rates: 
    • €42,000 taxed at 20% → €8,400
    • €8,000 taxed at 40% → €3,200
    • Total before deductions → €11,600
  • Then, you get two tax credits: 
    • Employee Tax Credit (€2,000)
    • Personal Tax Credit (€1,775)
    • Total credits → €3,775
  • Final Income Tax Bill → €7,825
  • You also pay USC (Universal Social Charge) → €1,046
  • Total Tax Bill → €8,871
 

B. Self-Employed Person (€50,000)

 
  • The same Income Tax rates apply: 
    • €11,600 before credits
  • But instead of the Employee Tax Credit, they get the Earned Income Tax Credit (€2,000)
  • The Personal Tax Credit (€1,775) still applies
  • Final Income Tax Bill → €7,825
  • USC is the same → €1,046
  • Total Tax Bill → €8,871
 
So, at €50,000, both a PAYE employee and a self-employed person pay the same total tax.
 
 

2. Why Self-Employment Might Be Better (Even Though the Tax Bill is the Same)?

 
Even though self employed people pay the same tax at €50,000, they have a few key advantages that might make it a better setup:
 

Deducting Expenses

 
Self-employed people can claim tax deductions for things like: 
  • Travel costs for work
  • Office equipment, phone bills, and software
  • Accountants, courses, and training
This lowers taxable income, meaning you pay less tax overall.
 
 

Pension Flexibility

 
They can put more money into a pension (and reduce their tax bill at the same time). PAYE workers get a pension from their employer, but self-employed people can structure their pension in a way that benefits them more.
 
 

More Control Over Earnings

 
PAYE workers have a fixed salary, while self-employed workers can grow their income by taking on more clients or projects. They can also adjust when and how they earn money, making their tax situation more flexible.
 
 

VAT Benefits

 
If registered for VAT, they can claim back VAT on eligible business expenses.
 
 

3. Comparing €100,000 Income for PAYE Workers vs. Self-Employed People

 
At €100,000, self-employed people pay more tax because of an extra USC surcharge. Here’s how it breaks down:
 

A. PAYE Worker (€100,000)

 
  • Income Tax: 
    • €42,000 taxed at 20% → €8,400
    • €58,000 taxed at 40% → €23,200
    • Total before deductions → €31,600
  • Tax Credits 
    • Employee Tax Credit (€2,000)
    • Personal Tax Credit (€1,775)
    • Final Income Tax Bill → €27,825
  • USC Charges → €4,043.80
  • Total Tax Bill → €31,868.80
 

B. Self-Employed Person (€100,000)

 
  • Income Tax rates are the same
  • They get the Earned Income Tax Credit (€2,000) instead of the Employee Tax Credit
  • Final Income Tax Bill → €27,825
  • But USC is higher because of a 3% surcharge for earnings over €100,000: 
    • Total USC → €7,043.80
  • Total Tax Bill → €34,868.80
At €100,000, self-employed people pay €3,000 more in tax than PAYE employees because of the USC surcharge.
 
 
 

Conclusion: Which Option is Better?

 
At €50,000, tax is the same for both PAYE and self-employed workers.
 
At €100,000, self-employed workers pay €3,000 more in tax due to the USC surcharge.
 
Self-employed people have more flexibility, can deduct expenses, and structure their income in ways that reduce tax over time.
 
PAYE workers have more security—regular salaries, employer benefits, and pensions without having to worry about tax deductions.
 
Which setup works best depends on your lifestyle and goals. If you like stability, PAYE might be best. If you want flexibility and control over your earnings, self-employment could be worth considering!
 

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Updated 10 Jul 2025 | Published 6 Mar 2015

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

Gearoid Condon, FCA

Gearoid is a highly experienced Chartered Accountant with 25 years of expertise in business consultancy, specialising in supporting SME business owners. Gearoid has worked with start-ups and with established businesses to improve the way they run, with particular focus on growth, efficiency, and structuring operations. Through his experience Gearoid has a strong understanding of the tax system and business regulations in Ireland.

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