News Irish News

Saturday 25 February 2017

Workers shocked by wage packets as new 'social charge' kicks in

Charlie Weston Personal Finance Editor

WORKERS opening their pay packets this month have been shocked at the income-tax changes and the effect of the new universal social charge.

The Finance Bill, published yesterday, is set to give effect to these changes.

The new universal social charge (USC) is basically an amalgamation and re-arrangement of the health and income levies that were introduced, and then increased, in the last two to three years.

Anyone earning over €4,004 will now pay a USC of 2pc, while those on incomes over just €16,016 will be hit with a 7pc charge.

Up to now the income levy was 2pc for those earning up to €75,036, and the health levy was 4pc for incomes up to that amount. This means the two levies together amounted to 6pc for those on middle incomes.

The health levy did not apply to pension contributions.

Now the new USC is 7pc for any income over €16,016 and is imposed on gross income, before deductions for a pension.

The imposition of the USC is in addition to PRSI (pay related social insurance) of 4pc. PRSI for employees now applies to all income.

Take-home pay is also being reduced due to a narrowing of tax bands, meaning that more people will be paying tax at 41pc. There has also been a sharp reduction in tax credits.

The income tax bands and the tax credits are being reduced by 10pc.

Reduction

The reduction in the standard tax rate band for a single person means that they will now pay tax at 41pc after they earn €32,800.

Up to now, the full 41pc did not hit until they earned €36,400.

For married couples with both partners working, the tax hike will kick in after they earn €65,600 compared to €72,800 last year.

A wide number of tax credits, which allowed the claimant to further extend their tax-free income, were also slashed.

Every €1 reduction in a tax credit means you pay an additional €1 in tax. A tax credit is a sum of money that is taken off the amount of tax you must pay.

Anyone earning tax credits such as one-parent tax credit, home-carer tax credit or the incapacitated-child tax credit will all see their tax-free entitlements fall.

Changes to the tax bands and credits have seen more than 132,000 extra people brought into the tax net.

An additional 84,000 people have ended up paying tax at the higher 41pc rate because of the changes to the tax bands.

Irish Independent

Read More

Promoted articles

Editor's Choice

Also in Irish News