Social charge means high earners pay less

MIDDLE-INCOME earners will be hardest hit by the introduction of the new universal social charge, which sees the abolition of the income and health levies into one payment.

Many of those earning more than €75,036 will be paying less following the introduction of the new charge.

Previously workers paid a 4% health levy on income up to €75,036 and a 2% income levy on earnings up to that level.

The new charge will see anybody earning over €16,016 paying a rate of 7% on their income.

In the previous system, high earners would have paid a health levy of 4% on income up to €75,036 and 5% health levy on the remainder.

For a single worker earning €150,000, for example, they will pay €1,432 less following the introduction of the universal social charge than they did paying the health and income levies.

The rates for the new charge will be 2% up to €10,036, 4% from €10,036 to €16,016 and 7% above this level.

The charge will be applicable on income over €4,000, which is a major drop on the €26,000 threshold for the existing charges.

Tax expert with Ernst & Young Jim Ryan said in reality the universal social charge will simplify the administration, calculation and collection of the health contribution and income levy.

The new charge will consolidate the levies into one contribution with a combined rate of 7%.

“This raises the question as to legitimacy of the temporary nature of the income levy,” he said.

President of the Irish Taxation Institute Andrew Cullen said the introduction of the universal social charge is a major step in the reform of the tax system.

“The introduction of the charge on all incomes over €4,000 means that almost every income earner in Ireland will be making some contribution to the Exchequer.

“One of the greatest challenges will be to ensure its smooth implementation, with payroll systems across the country requiring administrative changes to deal with the new charge,” he said.

The universal social charge will be effective from January 1, 2011.