Many are saying yesterday’s budget heralds the end of austerity in Ireland as, surprisingly, we are once again one of Europe’s fastest growing economies. For the first time since the start of the recession, the Government opened the purse-strings and gave some much-needed relief to struggling taxpayers.
Finance Minister Michael Noonan told us we are now entering a “new phase” where the focus is now ”on reforming the income tax system in a manner that positively contributes to and strengthens recovery”.
Here, we take a look at the measures introduced that affect PAYE workers and what impact will they have on the money in your pocket?
1. USC Changes
USC changes featured strongly in yesterday’s alterations to the tax system, with both USC bands and rates being changed.
As predicted, the threshold at which an individual becomes liable for USC was raised by €1,976 to €12,012. Incomes below this figure do not pay USC. The lower and middles rates of USC were also decreased by 0.5% to 1.5% and 3.5% respectively. A new fourth rate of USC was introduced for salaries over €70,044. Here is a table of the updated USC charges:
| New USC Bands | Rates |
| Exempt below €12,012 | 0% |
| First €12,012 (if over that amount) | 1.5% |
| Next €5,565 | 3.5% |
| €17,577 to €70,043 | 7% |
| Over €70,044 | 8% |
Using the salary examples from our Pre-Budget series of blogs, we can compare how these changes affect a range of salaries:
| Rate | Salary€18,000 | Salary €26,000 | Salary €35,000 | Salary €42,000 | Salary €84,000 |
| 1.5% first €12,012 | €180.18 | €180.18 | €180.18 | €180.18 | €180.18 |
| 3.5% next €5,565 | €194.78 | €194.78 | €194.78 | €194.78 | €194.78 |
| 7% €17,577 to €70,043 | €29.61 | €589.61 | €1,219.61 | €1,709.61 | €3672.62 |
| 8% over €70,044 | €0 | €0 | €0 | €0 | €1,116.48 |
| Total USC | €404.57 | €964.57 | €1,594.57 | €2,084.57 | €5,164.13 |
| Annual Saving | €174.23 | €174.23 | €174.23 | €174.23 | €34.75 |
2. Income Tax
The Government went further than expected with cuts to USC, and you can see from the table above that most salaries will benefit from a reduction of €174.23 per year from January.
Budget 2015 also raised the entry point at which employees become subject to the higher rate of income tax by €1,000. For a single person the entry point from January will be €33,800, for a married couple with one income this raises to €42,800, and €67,800 for a married couple with two incomes.
The highly speculated 1% decrease to top-rate Income Tax also came to pass in yesterday’s announcement. This reduces the top tax rate from 41% to 40%.
The New Income Tax structure before tax credits are applied will look like this from January:
|
Single Person Salary €35,000 |
Married Couple One Salary €45,000 |
Married Couple Two Salaries €35,000 x 2 = €70,000 |
|
|
Income Taxed at 20% |
Up to €33,800 |
Up to €42,800 |
Up to €67,600 |
|
Tax Payable |
€6,760 |
€8,560 |
€13,520 |
|
Income Taxed at 40% |
Over €34,000 (€1,200) |
Over €42,800 (€2,200) |
Over €67,600 (€2,400) |
|
Tax Payable |
€480 |
€880 |
€960 |
|
Total Tax Due |
€7,240 |
€9,440 |
€14,480 |
|
Annual Saving |
€222 |
€232 |
€444 |
However, when combined with the USC savings from part 1 above, the savings start to add-up. In the run-up to the budget, speculators had predicted an either/or scenario, so double relief is a unanticipated but welcome bonus.The annual saving from the adjusted tax rates is €222 for a single person or single income married couple, and €444 for a dual income married couple, which is a little lower than speculators had hoped for.
For the example above, a single person on €35,000 will have a combined saving on USC and Income Tax of €396.23.
A married couple with one salary on €45,000 will have a combined USC and Income Tax saving of €406.23.
A married couple with a joint salary of €70,000 (€35,000 x 2) will have a substantial combined USC and Income Tax Saving of €792.46.
3. Tax Relief
In a bid to calm the mounting opposition to the forthcoming water charges, Budget 2015 introduced a new tax relief on water charges. The new relief will be given at the lower income tax rate of 20% up to a maximum relief of €100 per year for all taxpayers.
The new water charges relief will operate in much the same way as medical expenses currently do, where individuals can claim the relief for expenses incurred in the previous year.
For example, this table shows the Tax Relief which can be claimed in 2016 for water charges incurred in 2015. Children under the age of 18 are free.
| Water Charge | Tax Relief @ 20% | |
| 1 Adult | €176 | €35.20 |
| 2 Adults | €278 | €55.60 |
| 3 Adults | €380 | €76.00 |
| 4 Adults | €482 | €96.40 |
| 5 Adults | €584 | €100 (Maximum allowable charge is €500) |
Overall, Budget 2015 contains a range of agreeable tax measures which will help ease the tax burden that years of re-adjustment had placed us under. This is welcome news for most PAYE workers, who will also be encouraged by Enda Kenny’s pledge today to reduce income tax further in next year’s budget.
Written by Alexandra Byrne.
I’m what you call an all-rounder! Having worked in customer services, accounting and now in marketing, I’m the one who can tie all the pieces of the puzzle together. I’ve a BSc from University of Limerick so I’m analytical, but I also love change! I’m constantly astounded by the lack of awareness we Irish have about our entitlements, and I like spreading the word about tax refunds – so as many people as possible can claim everything they are entitled to.