Reference

Deductions, credits, exemptions, reliefs.

Four mechanisms; four different mathematical effects on your tax bill. Mixing them up consistently overstates or understates the value of pension contributions, charitable giving, and family-status reliefs.

1. Deduction (a.k.a. allowance, write-off)

Reduces taxable income before bracket rates are applied. The value of a €1,000 deduction equals €1,000 × your marginal rate. A higher-rate taxpayer benefits more in absolute terms.

Examples:

UK pension contributions (made gross at source for higher-rate taxpayers; reclaimed via self-assessment).
Irish pension contributions (deducted at marginal rate via PAYE).
US student-loan interest deduction (above-the-line, capped).
UK gift aid charitable donations (effectively a deduction for higher-rate taxpayers).

Worked example. €5,000 pension contribution by an Irish higher-rate taxpayer (40 %): tax saving = €5,000 × 0.40 = €2,000. Net cost of the contribution: €3,000 to add €5,000 to the pension.

2. Tax credit

Reduces the tax owed directly, after bracket rates have been applied. The value of a €1,000 credit is exactly €1,000 of reduced tax, regardless of the taxpayer's marginal rate. Mathematically equivalent for low-income and high-income taxpayers in absolute terms; proportionally larger relief for low-income.

Examples:

Irish personal tax credit (€1,775 in 2025/26 for single PAYE workers; doubled for married couples).
US Child Tax Credit (up to $2,000 per child under 17, partially refundable).
UK Marriage Allowance (a credit when one partner is a basic-rate taxpayer and the other is below the personal allowance).
Irish PAYE credit (€1,775 in 2025/26).

Worked example. Irish single PAYE worker earning €30,000: gross tax at 20 % on full income = €6,000. Less personal credit (€1,775) and PAYE credit (€1,775) = €2,450 net income tax.

3. Exemption

Removes a class of income from taxable income entirely. Value scales with the marginal rate, like a deduction, but the eligibility is typically defined by the source of income rather than by the taxpayer's actions.

Examples:

Irish age-related exemption for pensioners over 65 with income below specified limits.
Personal-injury compensation receipts (most jurisdictions).
Roth IRA / ISA withdrawals (US/UK respectively): contributions are post-tax, but growth and withdrawal are exempt.
US municipal bond interest (exempt from federal tax).

4. Relief / refund

A residual category covering rebates and refunds processed after the main return is filed. Effectively reduces tax owed but the mechanism varies by relief.

Examples:

Irish rent tax credit (introduced 2022, €1,000 per renter per year).
US Saver's Credit (matches retirement contributions for low-income filers).
UK working from home relief (£6/week reduction in taxable income for employees).

The headline distinction

Deductions favour higher-rate taxpayers. A €1,000 pension contribution gives a higher-rate Irish taxpayer (40 %) a €400 tax saving; the same contribution gives a standard-rate taxpayer (20 %) a €200 saving. Tax credits, by contrast, give equal absolute benefit regardless of marginal rate — though equal absolute benefit is a much larger proportional benefit for low-income filers.

What the calculator on this site supports

The calculator handles a single pre-tax deduction line and applies the standard credits relevant to each jurisdiction (personal allowance for the UK; personal tax credit for Ireland; standard deduction for the US). It does not model:

Multiple separate deductions (pension, gift aid, mileage, etc.)
Non-standard tax credits (child credits, dependant credits, age credits)
Refundable vs. non-refundable distinctions on US credits
UK Scottish-specific bands

For complete personalised analysis, use the official tax authority calculator or engage a qualified adviser.