The Minister for Finance Michael Noonan T.D. presented his 2016 Budget yesterday which outlined a wide range of changes to the tax system with particular emphasis on personal taxation, initiatives to begin equalising the tax treatment of the self-employed and employees as well as steps to support businesses in Ireland.
The key features of yesterday’s Budget are outlined below.
Universal Social Charge
Comprehensive changes were introduced to the Universal Social Charge for 2016 which are aimed at reducing the tax burden on low and middle income earners.
The entry threshold for Universal Social Charge (“USC”) will be increased from €12,012 to €13,000.
Otherwise, rates of USC will be reduced as follows:
• Income up to €12,012 – Rates reduced from 1.5% to 1%.
• Income from €12,013 to €18,668 – Rates reduced from 3.5% rate to 3%.
• Income between €18,669 – 70,044 – Rates reduced from 7% to 5.5%
• Income between €70,045 – €100,000 – 8% (no change)
• PAYE Income in excess of €100,000 – 8% (no change)
• Self-employed income in excess of €100,000 – 11% (no change)
The top rate USC exemption will be retained for all medical card holders and individuals aged seventy years and older providing their total income does not exceed €60,000.
There have been no changes to the income tax rates and bands.
PRSI (Pay Related Social Insurance)
Budget 2016 introduced a tapered PRSI tax credit for employees up to €624 per annum.
The entry point to the higher rate of employers’ PRSI of 10.75% will be increased to €376 per week which will be a welcome introduction by all employers.
The reason for this tapered PRSI credit being introduced is to ensure low income earners benefit from the increase to the minimum wage which will take effect in January 2016.
The credit applies to individuals earning between €18,304 and €22,048 per annum and is be subject to a maximum of €12 per week.
Earned Income Tax Credit
In an attempt to equalise the tax treatment of the self employed with employees paid through the PAYE system, the government will be introducing an Earned Income Tax Credit of €550 per annum in 2016.
This new tax credit will be available to individuals who are not eligible for the PAYE Tax Credit including those earning self employed trading or professional income (subject to Income Tax under Cases I and II Schedule D), those in receipt of Case III Schedule D income as well as to business owners who, up to now, didn’t qualify for a PAYE credit on their salary.
There was no reference made to tax relief on pensions in this Budget.
The “additional” pension levy of 0.15% will expire at the end of 2015.
The original 0.6% pension levy ended in 2014.
Home Carer’s Tax Credit
The Home Carer’s Tax credit increased by €190 to €1,000 per annum.
|The income threshold for the home carer claiming this allowance has been increased from €5,080 to €7,200. This Tax Credit can be claimed by a jointly assessed couple in a marriage or civil partnership where one spouse or civil partner cares for one or more dependent persons which include children, the elderly, incapacitated etc.|
|Other Points of Interest|
Apart from the Earned Income Tax Credit, Budget 2016 announced a number of new tax measures aimed at encouraging and supporting entrepreneurs and small business owners including:
Local Property Tax (LPT)
The Local Property Tax revaluation date for the Local Property Tax has been extended from 2016 to 2019. This follows recommendations in the “Review of the Local Property Tax” report which has also recommended exemptions for properties significantly affected by pyrite.
NAMA is to deliver 20,000 houses between now and 2020. 90% of these in the Dublin area and 75% of the overall total will be starter homes.
This is the first time since the Budget in April 2009 that the marginal rate for middle income earners has fallen below the 50% rate.