Workers to gain equivalent of extra week's wages as axe falls on the USC
WORKERS will gain the equivalent of an extra week's wages, Finance Minister Michael Noonan said as he announced major changes to the controversial Universal Social Charge (USC).
Fewer people will now end up paying the USC, while those that do will pay lower rates.
But the gains will only go to earnings up to €70,044.
Some 42,500 workers will no longer pay USC at all, after the minister increased the entry threshold to €13,000 from €12,012 previously.
Mr Noonan has also reduced the 1.5pc rate to 1pc. This applies on the first €12,012 of income for those earning above the threshold.
The 3.5pc rate of the USC will drop to 3pc next year. This rate applies on income between €12,012 and €18,668.
But the big change is to the main 7pc rate. It falls to 5.5pc and applies on income in excess of €18,668 up to €70,044.
The reduction to the 7pc rate will benefit some 1.28 million workers.
Mr Noonan said this would reduce the marginal rate of tax to 49.5pc for all earners under €70,044 for the first time since the supplementary budget in April 2009.
Overall the Finance Minister promised the measures would result in "an additional week's wages for all workers".
However, there will be no gains on income over €70,045, in line with last year's Budget.
The top 1pc of income earners will pay 22pc of all income tax and USC collected, he said.
The bottom 75pc of income earners will pay less than a fifth of the total.
He said it is estimated that more than 700,000 income earners will not be liable to pay USC at all from next year.
The other big announcement is a new tax credit for self-employed people.
A tax credit is basically an amount of income you do not pay tax on.
The minister said there was a need to encourage new and existing entrepreneurs.
The credit is a third of the value of the PAYE tax credit currently available to PAYE workers.
Mr Noonan promised that the credit will be increased over the next couple of years to align the credits available to both PAYE workers and self-employed individuals, if his Government is returned to power.
Associate director of tax at KPMG Ireland Helen Creedon said the tax credit for the self-employed is welcomed and it is long overdue.
"It is the first step in providing a similar credit that is available for PAYE workers and we expect it will be increased over the next couple of years to fully align the credits available to both PAYE workers and self-employed individuals."
There was no change to the tax bands - the amount of income you earn before hitting the different rates.
Single earners will continue to hit the higher 40pc tax rate on incomes over €33,800.
Fianna Fáil's Michael McGrath said this failure to index the tax bands would mean that any wage rises would mean people paying more income tax.
"Taxpayers will pay more tax as the income tax bands are not being adjusted to take account of expected wage inflation.
But business groups, including IBEC and the American Chamber of Commerce, welcomed the fall in personal taxes.