Updated 6.15 pm
FINANCE MINISTER MICHAEL Noonan has finally confirmed what’s being done to change income tax rates for hard-pressed middle-earners.
The higher rate of income tax is to be cut from 41% to 40%.
Changes to both the Universal Social Charge rates and their income bands will also mean tax relief.
The changes reduce the 52% top marginal rate of tax (when income tax, PRSI and USC are combined).
At present, the USC is a direct taxation payment taken off a worker’s pay packet if they earn over €10,000 a year. The charge is levied at three separate rates:
The entry point at on that bottom rate is now to be raised to €12,000 taking an estimated 80,000 workers out of the payment bracket altogether according to Finance Minister Michael Noonan.
In essence, it means that anyone earning below €12,000 will not be subject to USC.
The bands will also be changed so that the higher rates kick in at higher levels, reducing peoples’ tax burdens.
The entry rate for the second rate of USC is to be increased from €10,036 to €12,000, the upper ceiling on this band will be €16,000.
It means that, for anyone who earns over €12,000, the higher rate of USC will now be on income over €12,000 and not €10,036 as it is presently.
The rates themselves are also set to change:
A fourth rate of USC is now to be added at 8% on earners above €70,000.
Minister Noonan also announced that self-employed income in excess of €100,000 is to be subjected to a USC rate of 11%.
Informing the Dáil of the tax changes today, Finance Minister Michael Noonan said that people earning the minimum wage will now face a maximum USC rate of 3.5%.
For a couple earning €50,000 each it will mean an additional €100 each in their pockets per month, he said.
“These changes enhance the progressivity of our income tax system with the top 1% of income earners now paying 21% of all income tax and USC collected. In contrast, the bottom 76% of income earners will pay 20% of the total,” Noonan told deputies.
Income tax reduction = job creation?
The cut to the higher rate of income tax had been well flagged in advance of today’s budget speech and been partly touted as a way of counteracting the phasing out of the ‘double Irish’ tax incentive for multinationals.
Analysts had speculated that the decision to cut the top rate of tax was also taken as a way of stimulating job growth by encouraging multinational companies to base themselves here with the lure of lower taxes for executives.
Noonan told the Dáil that that these tax changes will make work attractive and estimated that they would directly boost employment by 15,000 by 2018.
- With reporting from Daragh Brophy
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