Monday 18 February 2019

120,000 workers to face paying higher taxes after Budget

Finance Minister Paschal Donohoe brings in his next Budget in October. Photo: Frank McGrath
Finance Minister Paschal Donohoe brings in his next Budget in October. Photo: Frank McGrath
Charlie Weston

Charlie Weston

Thousands of workers are set to end up paying more income tax due to wage rises.

Some 120,000 will end up paying income tax for the first time, with others having to pay the higher 40pc rate as their earnings will push them into the upper tax band.

The development will put a further squeeze on middle-income earners.

New figures from the Revenue Commissioners show that close to 600,000 people will pay tax at the 40pc rate next year.

This is 65,000 more workers than are paying the higher rate this year.

They will end up losing out financially unless Finance Minister Paschal Donohoe changes the tax bands in October's Budget.

And another 57,600 will have to pay income tax for the first time as their earnings will push them into being taxed at the 20pc rate.

Some 1.18 million employees will pay tax at the standard, or 20pc rate from next January.

But at the same time some 941,600 taxpayers will be entirely exempt.

Single earners only pay income tax on earnings of €16,501 or more.

The idea of keeping so many people out of the tax net is to avoid poverty traps where people find it more financially beneficial to stay on welfare rather than to take up paid employment.

Many low income earners have to get the Family Income Supplement to boost their income and avoid situations where they would be better off on the dole.

Rising incomes will also mean more USC (universal social charge) will be taken from workers' wages next year.

Close to 20,000 higher rate workers will also find themselves paying more USC.

This is because incomes of €70,044.01 or more levied at a rate of 8pc.

But 775,500 will be exempt from paying USC.

The figures show that close to 15,000 people who pay no income tax this year, as their low incomes make them exempt, will end up paying income tax from next year unless there are changes in the Budget.

This will mean 35pc of workers will be outside the tax net, down from 37pc this year.

Separate Tax Strategy Group research states 26pc of income earners who pick up €50,000 or more will pay 85pc of income tax and USC this year.

The personal tax burden has been reduced in the last four Budgets, the strategy paper makes clear.

The papers are put together by senior Government officials to scope out tax possibilities for the Budget.

The income tax strategy paper said consideration should be given for an increase in the income you can keep before you are liable to pay the 40pc higher rate.

It also sets out the case for more tax relief for the self-employed.

Single workers pay the higher rate of income tax on earnings above €34,550, which is relatively low compared with other countries, according to the strategy report.

As incomes rise, the strategy group says "consideration could be given to further increases to the standard rate income tax band".

The income tax band was increased last year and indications are that it is a priority for the October Budget.

The self-employed would benefit from an increase in the earned income tax credit. For the self-employed there is a credit of €1,150.

Irish Independent

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