The increase in the standard rate cut-off point means that the top rate of tax of 40pc will only apply to income above €40,000
INCOME taxpayers will get some small cheer in the new year with the changes announced in the Budget.
The State 2.5 million taxpayers are set to benefit from €1.1bn in income cuts.
And some tax relief for renters is on the way back, although at €500 a year it is only going to go part of the way to covering the costs for tenants.
All income taxpayers will get a boost as the amount of money you can earn before hitting the top rate of tax is going up.
Finance Minister Paschal Donohoe said he is increasing the standard rate cut off point by €3,200 to €40,000, with proportionate increases for married couples and civil partners.
He is also increasing the main tax credits (personal, employee and earned income credits) by €75.
The changes to the tax credit means that workers can earn an extra €150 before they pay tax. And he is increasing the home carer tax credit by €100, to support stay-at-home parents.
The increase in the so-called standard rate cut-off point means that the top rate of tax at 40pc will only apply to income above €40,000.
The tax changes are set to save single people around €800 a year and couples €1,600. For a couple on €80,000, the income tax changes mean a boost of €1,600 a year.
Consumer tax manager at Taxback.com Marian Ryan said the Government’s decision to increase the entry point for the top rate of income tax to €40,000 is welcome – but it doesn’t go far enough.
It is hugely unfair that those earning an average wage are still being hit with the higher rate of income tax
“We believe the Government should have increased the level at which people hit the higher rate of income tax to €50,000 – as this would have made a huge difference to all those battling with rising living costs.”
She said that changes mean taxpayers will go onto the higher rate of income tax once they earn €40,000 – which is still well below the average Irish wage of €45,324.
“It is hugely unfair that those earning an average wage are still being hit with the higher rate of income tax,” Ms Ryan said.
Minister for Public Expenditure and Reform Michael McGrath said he was introducing a new rent tax credit valued at €500 per year.
“This measure, aimed at those who do not get any other housing supports, will apply for 2023 and subsequent tax years but I am providing that it may also be claimed in respect of rent paid in 2022.”
Approximately 400,000 people are expected to benefit. Further details are contained in the Budget documentation.
There is an increase in the second USC rate band (2pc rate) from €21,295 to €22,920 in line with the 80c per hour increase in the national minimum wage.
The increase in the USC band will ensure that full-time workers on the minimum wage will remain outside the top rates of USC, Mr Donohoe said.
And he said that a concession allowing for a reduced rate of USC that applies to those who have a medical card and earn less than €60,000 per year will be extended for another year.
Workers will also benefit from an increased tax relief for vouchers they can get from their employers.
This is because the Government is increasing the annual limit provided for in the small benefit exemption from €500 to €1,000.
It will also permit two vouchers to be granted by an employer in a single year under this exemption.
The Government committed to carrying out further analysis on introducing a third rate of tax, at 30pc, something being pushed by Tanaiste Leo Varadkar.
The Government said it was also committed to developing a medium-term roadmap for personal tax reform, taking account of the recent Report of the Commission on Taxation and Welfare, and will consider a range of measures across income tax, USC and PRSI together with other related personal taxation issues.