This is the second part of our Pre-Budget series, which is designed to help you navigate the maze of speculation surrounding tax proposals for 2015.
Today we’ll take a look at the well-run rumour of a cut to the Standard Income Tax rates using a 1% reduction, as this is the most common estimation. We’ll give examples across a broad range of salaries so you can estimate how much money you could save if these changes come into existence.
- Reduce Income Tax Rates by 1%
At the moment, anyone earning over €16,500 pays Standard Income Tax of 20%. This rises to 41% for any income over €32,800.
Using the salaries from our previous examples in Part 1 of this series, here are the Income Tax calculations as they stand today (assuming standard Tax Credits of €3,300).
|
Rate |
€18,000 |
€26,000 |
€34,000 |
€42,000 |
|
20% over €16,500 |
300 |
1,900 |
3,260 |
3,260 |
|
41% over €32,800 |
– |
– |
492 |
3,772 |
|
Total Income Tax |
€300.00 |
€1,900 |
€3,752 |
€7,032 |
If there were to be a reduction in lower rate income tax from 20% to 19%, this would benefit all tax payers with differing levels of annual savings.
|
Rate |
€18,000 |
€26,000 |
€34,000 |
€42,000 |
|
19% over €16,500 |
285 |
1,805 |
3,097 |
3,097 |
|
41% over €32,800 |
– |
– |
492 |
3,772 |
|
Total Income Tax |
€285 |
€1,805 |
€3,589 |
€6,869 |
|
Annual Saving |
€15 |
€95 |
€163 |
€163 |
Another possible option is to decrease the top income tax rate from 41% to 40%. This would go against the Government’s promise of providing relief to lower and middle income earners as very little relief (if any) would be provided to those earning up to €35,000.
|
Rate |
€18,000 |
€26,000 |
€34,000 |
€42,000 |
|
20% over €16,500 |
300 |
1,900 |
3,260 |
3,260 |
|
40% over €32,800 |
– |
– |
480 |
3,680 |
|
Total Income Tax |
€300.00 |
€1,900 |
€3,740 |
€6,940 |
|
Annual Saving |
€0 |
€0 |
€12 |
€92 |
As you can see from the examples above, the most benefit to all salary ranges is a reduction in lower rate of Income Tax. However, when we compare this with the rumoured reductions to USC, a reduced rate of USC – as we saw in Part 1 of this series – would still give the best savings to most workers.
According to the Irish Tax Institute, decreasing the USC rates also has a lower cost to the Exchequer compared to decreasing Income Tax Rates, which probably makes USC reduction the more likely option. For now, we’ll just have to wait until Budget Day on October 14th to see what the Government decide.
To have our experts check your taxes for a refund before Budget Day, apply now.
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.