Michael McGrath (Cork South Central, Fianna Fail)
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Question 78: To ask the Minister for Finance if he will provide details of the proposed change to a cumulative basis for the collection of the universal social charge; the basis of his estimation of a €50 million yield from the measures in a full year; the way this change will impact on individual taxpayers; and the circumstances in which a person will end up paying more universal social charge arising from the change. [40237/11]

Michael Noonan (Limerick City, Fine Gael)
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The position is that the Universal Social Charge (USC), as with the Income Levy before it, has operated on what is known as "a week-one" basis. The week-one basis allows for the collection of USC by employers on a weekly basis in a similar way to PRSI. This means that USC is deducted from each payment of weekly wages/salary, where the payment is greater than the exemption limit, at the rate of 2% up to €193, 4% between €194 and €308 and 7% from everything in excess of €309. The week-one basis was applied to the collection of the USC, to facilitate its speedy implementation. The week-one basis, however, is not ideally suited to the USC as the USC is a multi-rate tax that applies on a progressive basis to a person's aggregate income for the year. The week one basis, in some cases can result in an underpayment of the USC. This happens, in particular, where a person has multiple employments or where wages/salary is paid unevenly throughout the year.

I am advised by the Revenue Commissioners that they intend to introduce Regulations that will require USC to be operated by employers on a full cumulative basis similar to that used for PAYE income tax with effect for all payments of wages/salary made on or after 1 January 2012. The estimation of a €50m yield from the move to a cumulative basis for the collection of the USC is based on an analysis by the Revenue Commissioners of income data relating to employees and of the employment patterns of employees.

The change to a cumulative system will ensure that employees with multiple employments or who only work for short periods in the year or who are paid irregularly, pay the correct amount of USC on each pay day. For example, if a person had two employments, each below the new proposed exemption rate of €10,036, on a week–one basis each employment would be dealt with in isolation and the person would pay no USC whatever in the year. If the cumulative pay for the two employments exceeded €16,016 the person should be paying USC at the rate of 7% on the portion of their earnings in excess of €16,016. A similar issue could arise where a person was in receipt of irregular payments throughout the year.

For taxpayers, putting the USC on a cumulative basis means that:

· People changing employment and people in multiple employments will pay the correct amount of USC consistently throughout the year.

· The possibility of underpayments or overpayments of USC will be minimised.

· There will be a reduction in the administrative burden on employers due to a reduction in the cost of managing payroll. It will remove the need to perform end of year reconciliations for the purpose of providing refunds to employees where overpayments arise.