Social charge: New tax replacing health and income levies will apply to far lower pay levels
Published 08/12/2010 | 05:00
'Employers will welcome the new charge to a certain extent, as it is more straightforward'
THE income and health levies will now be merged into a new tax to be known as the universal social charge (USC), which will apply to much lower levels of income.
From January the USC will apply to anyone with income over €4,000 in a move that means that almost every income earner in the country will be making some contribution to the Exchequer.
Up to the end of the year the income levy does not apply to anyone earning less than €15,028.
The health levy only kicks in on income over €26,000.
But next month the USC -- which the Government says is being introduced on a revenue-neutral basis -- will apply at the following income thresholds, down from the €26,000 threshold for the existing charges:
- 0pc on income up to €4,004.
- 2pc on income up to €10,036.
- 4pc on income between €10,037 and €16,016.
- 7pc on income greater than €16,016.
Eoghan Quigley, tax partner with KPMG, commented: "The effective relabelling of the health and income levies into the more straightforward universal social charge is of little comfort to taxpayers who are all paying more tax due to the erosion of tax bands and credits.
"Employers will, however, welcome it to a certain extent, as it is administratively more straightforward to calculate and operate."
For now PRSI (pay related social insurance) will remain separate to the USC, but there are plans to eventually merge this into the charge.
Also announced yesterday, the ceiling that meant people did not pay PRSI above €75,036 has been abolished in a move that will hit high earners.
The PRSI rate for self-employed people will be increased from 3pc to 4pc. Meanwhile, employee contributions to pension schemes will now be subject to employee PRSI and the new USC.
But despite the higher PRSI for the self-employed, these people will not end up paying more tax at the margin.
The marginal rate for the self-employed will come into line with those in PAYE employment of 52pc. This will remove the current anomaly under which the self-employed have a marginal rate of up to 55pc.
The changes in the USC will hit pensioners with a private pension hard.
Calculations by KPMG show that over 70-year-old who has a medical card will now be almost €1,000 worse off because the new charge will apply to them.
"Until this Budget the health levy and the income levy did not apply to the over-70s on a medical card, but the universal social charge will apply now, but at a lower rate of 4pc," KPMG tax expert Quigley said.