Medical card holders to get tax refund after U-turn
THOUSANDS of people who have medical cards could be in line for a tax rebate after the Government moved yesterday to make changes to the controversial universal social charge (USC).
Finance Minister Brian Lenihan had planned to force people who have medical cards to pay up to 7pc on the universal social charge.
But yesterday he relented and said that those with a medical card would now only have to pay a maximum of 4pc.
The move is set to cost the Exchequer up to €80m.
Some 1.6 million people, or one in three people in the State, have a medical card, according to the Department of Finance.
Most people with a medical card will not have to pay the universal social charge as their earnings are too low, but some 200,000 people will be hit with the new charge.
Many of those were facing having to pay up to 7pc on their income, but now they will not have to pay more than 4pc.
Those who already had the full 7pc deducted from their income or their pension this month may now be due a rebate, tax experts said last night.
Also yesterday, Mr Lenihan said the Finance Bill would be amended to allow the social charge to be increased for the self-employed who earn more than €100,000.
They will now have to pay 10pc on any earnings over €100,000.
There was huge criticism after the Budget that high-earning self-employed people would do better under the new universal social charge than when the the income and health levies existed.
Under the health and income levies, high earners ended up paying a combined 11pc, but the USC had seen them paying a maximum of 7pc.
Head of taxation at Chartered Accountants Ireland, Brian Keegan, said yesterday's changes meant the self-employed would now have a marginal tax rate of 55pc.
The introduction of the USC had meant their marginal tax rate fell to 52pc.
The new USC has proved to be hugely controversial as it brings 130,000 workers into the tax net who never paid tax before.
It replaces the income and health levies. It is levied on pensioners and those with medical cards as well as those on low incomes.
Previously the health levy did not apply for those with medical cards.
But now anyone who earns more than €4,004 has to pay the new universal social charge. The charge is not levied on social welfare payments. For anyone with income of more than €4,004, the USC is 2pc on the first €10,036 of income.
It rises to 4pc on the rest of a person's income up to €16,016 and then 7pc for income of more than that.
The USC is in addition to pay related social welfare (PRSI) payments.
Mr Lenihan said last night that the USC was necessary to help pay for the fact that 1.6 million people had medical cards and to help pay for the €2bn spent on child benefit, and the €2.6bn on jobseekers' benefit.
Labour's Joan Burton claimed the Government had eased the USC burden on those with medical cards to make it easier for Fianna Fail candidates in the election.
"What we need is a full social and economic impact assessment for the introduction of the USC, particularly taking into account the impact on the low paid," she said.
She said the changes announced yesterday did little or nothing to ease the overall tax burden on most taxpayers.
The Small Firms Association said the new higher rate of 10pc on income over €100,000 for the self-employed would do nothing to encourage job-creating entrepreneurs.