Monday 23 July 2018

Budget changes kick in to ease burden on pay packets

Stock image
Stock image
Charlie Weston

Charlie Weston

Consumers are set for a new year uplift to their finances. The start of 2018 coincides with a boost for millions of people as Budget changes start to take effect.

These include income tax changes and cuts to the universal social charge that are set to ease the burden on pay packets.

Under the Budget changes, a PAYE worker can earn an extra €750 in 2018 before getting hit for the higher rate of income tax.

Those who work for themselves are set to be the biggest gainers. What is called the earned income tax credit for the self-employed goes from €950 from the start of January to €1,150.

This means they can earn an extra €200 without paying tax.

The cuts in the universal social charge (USC) will also allow most people to take home more pay after tax, and will benefit those with supplementary pensions.

The USC cuts will be a boost to anyone earning more than €13,000 a year.

The lower rate of USC goes from 2.5pc to 2pc, with the ceiling for this rate going to €19,372. The standard 5pc rate of USC falls to 4.75pc, which applies to the next €51,000 of income. Middle-income earners will gain from that.

The changes to income tax and the USC will mean a person on the average income of €36,920 will be €246 a year better off. This is less than €5 a week.

A €55,000 earner will gain €291 a year, or €6 a week.

Parents working in the home will gain from the changes to home carer tax credit, whether caring for a dependent child or other relative.

The credit rises by €100 to €1,200 from the start of the year.

However, the Economic and Social Research Institute (ESRI) has found the changes in income taxes and the State pension did not go far enough to match wage growth. Families with children were some of the biggest losers, according to the analysis by Prof Tim Callan and others at the ESRI.

The ERSI found that proper indexation of the tax bands, to stop people paying more tax as their income rises from wage increases, would have required an increase of €1,050 in the standard rate band.

The Budget delivered a €5 a week rise in the State pension and in unemployment payments. But the pension rise is not due until March.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business