Alison McHugh, Tax Director at Deloitte answers: What does the change to the standard rate and USC mean to you?
This year’s Budget sees the standard rate band widen from €34,550 for a single person to €35,300. There was also a cut in the 4.75% rate of USC to bring it down to 4.5% and a slight widening of the 2% band to ensure those on the minimum wage do not move into the 4.5% USC bracket.
- With no increase in personal tax credits for employees, an individual on €70,000 per annum will see an increase of €24 in their monthly take home pay.
- For married couples with one income, the standard rate band has increased from €43,550 to €44,300.
- For a married couple with 2 children where one spouse stays at home to care for the children, their net monthly income will increase by €49. This includes the increase in home carers’ tax credit of €300 to bring the credit up to €1,500.
- For an old aged pensioner with a full state pension and a separate occupational pension of €25,000 p.a., their net monthly income will increase by €31, taking into account the €5 weekly increase in the state pension, full restoration of the Christmas bonus and other tax changes.
Budget 2019 does not go far enough for the self-employed, according to Alison McHugh, Tax Director at Deloitte
The self-employed tax credit has increased from €1,150 to €1,350; whilst this brings the self-employed credit closer again to the employee PAYE credit of €1,650, in our view Budget 2019 does not go far enough to narrow the gap between the tax burden for employees and the tax burden for self-employed.
It is disappointing that once again no measures have been taken to align the USC rates for both employees and self-employed resulting in an additional 3% surcharge continuing to be paid by self-employed individuals earning over €100,000.
A significant gap remains when compared to pre-financial crisis, according to Alison McHugh, Tax Director at Deloitte
Whilst the changes in the income tax bands and credits will see most families with some increase in their net monthly income, there is still a significant gap in where we were at before the financial crisis.
- In 2008, a married couple with two children and one spouse earning €80,000 had a net take home pay of €5,286 including a monthly children’s allowance payment of €332.
- In 2019 that same couple’s net monthly take home pay (including children’s allowance which is now down to €280) is €5,017. Coupled with the increase in cost of living together with other taxes such as increased VAT and the introduction of local property tax, this family has seen a significant drop in their disposable income.
Recent budgets have not gone far enough to reverse the impact of the earlier austerity budgets during the period of financial crisis, according to Alison McHugh, Tax Director at Deloitte
The Universal Social Charge weighs heavily on tax payers increasing the marginal rate of tax from 47.5% in 2008 to 52% in 2019 for employees and 55% for self-employed. While income tax rates are down, the reduction in monthly income is largely due to the USC and increased PRSI.
For “high earners”, particularly the self-employed, the more recent budgets have not gone far enough to reverse the impact of the earlier austerity budgets during the period of financial crisis.
A self-employed person earning €200,000 will now be paying over €10,000 more tax in 2019 than s/he did in 2008, resulting in his/her effective rate of tax increasing from 42% to 47%. By comparison an employee earning the same amount in 2019 will have an additional €3,000 of income than their self-employed counterpart due to the additional 3% surcharge payable on amounts in excess of €100,000.
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