Nearly 140,000 to pay income tax for first time

ALMOST 140,000 people will be forced to pay income tax for the first time as a result of changes to the tax system.

Thousands of single people will now have to pay tax at the higher rate of 41% on income of more than €32,800, down from the original cut off point of €36,400.

Finance Minister Brian Lenihan said the current tax system is no longer fit for purpose and by cutting tax credits and bands by 10%, the changes aim to bring more of the country’s workforce into the tax net. This will also mean more people will now pay tax at the higher rate.

Mr Lenihan said that to date 45% of the workforce was outside the tax net and no income tax was paid on incomes of €18,300 or less.

Under the changes the personal tax credit is being reduced from €1,830 to €1,650 for single persons and from €3,660 to €3,300 for married people.

This will mean individuals will now pay an extra €180 in tax and married couples will pay €360 more.

Married people with a single income will pay tax at the higher rate on income more than €41,800 which is down from €45,400 while married people in double income families will now start paying tax at the higher rate on income over €65,600, after the band was cut from €72,800.

The cut-off point for single parents is €36,800, down from €40,400.

High earners will also be hit by the abolition of the €75,036 PRSI ceiling for employees.

Also the PRSI rate for self-employed people will be increased from 3% to 4%.

Dublin Chamber chief executive Gina Quin said: “It is these workers, in the knowledge and creative sectors, that cities like Dublin are looking to attract. The abolition of the ceiling will reduce the attractiveness of Dublin as a location for high productivity employment.”

Tax partner with Ernst & Young Jim Ryan said: “Despite the 1% increase in the rate of PRSI payable by the self employed, when it is aggregated with the universal social contribution, which replaces the health contribution and income levy, it will bring their marginal rate in line with those in PAYE employment of 52%, thereby removing the current anomaly under which self employed individuals have a marginal rate of up to 55%.

“Both the amount of income chargeable at 20% and the personal tax credit have been reduced by 10%, and we can expect to see similar reductions for the next three years.”

Tax reliefs on patent income, trade union subscriptions, private rented accommodation, employer-provided childcare, farm building pollution control spending, approved share option schemes, and various other minor schemes, are to end.

Mr Lenihan said those on the new reduced minimum wage will not be brought into the tax net.

Irish Taxation Institute president Andrew Cullen said the budget represents the first phase of the four-year plan which will lead to a change in the structure of Ireland’s tax system with more reliance being placed in the future on indirect taxes through property taxes, water charges, carbon taxes and increased VAT rates.

“This will bring about a more sustainable tax base and will allow Governments to plan spending based on a more solid tax base.”