Thursday, 18 July 2013
Department of Finance
Universal Social Charge Application
The position is that the Universal Social Charge (USC) was introduced in Budget 2011 to replace the Income Levy and Health Levy. It was a necessary measure to widen the tax base, remove poverty traps and raise revenue to reduce the budget deficit.
There are certain exemptions and reliefs from the USC. For example, persons in receipt of a payment from the Department of Social Protection such as the contributory and non-contributory state pension are exempt from the charge. There are also concessions for medical card holders and persons aged 70 or over who are not liable to the top rate of charge if their income does not exceed €60,000 per annum. In addition, payments from the Department of Social Protection will not be taken into account in determining if an individual has exceeded the €60,000 threshold.
As the Deputy will be aware, delivering on a commitment in the Programme for Government, the USC was reviewed by the Department of Finance in the lead up to Budget 2012. The report is available at www.finance.gov.ie. As a result of the review of the USC, the Government decided in Budget 2012 to increase the entry point to the Universal Social Charge from €4,004 to €10,036 per annum. It is estimated that this removed almost 330,000 individuals from the charge.
Finally, I would point the Deputy to the Revenue Commissioners published document entitled “Universal Social Charge FAQs” which gives a comprehensive list of the incomes streams which are exempt from the USC and is available at .
203. To ask the Minister for Finance the reason his Department differentiates those with an income of more than €100,000 into two categories for universal social charge, at different rates; and if he will make a statement on the matter. [36779/13]
The USC was introduced from 1 January 2011 and replaced the Income and Health Levies. The marginal rate for each of these levies was 6% and 5%, respectively, or 11% in total. The marginal rate for the USC was 7%. Taken in isolation the introduction of the USC, therefore, would have had the effect of reducing by 4 percentage points the top marginal tax rates for both PAYE and self-employed income earners paying at those rates. At the same time, the PRSI ceiling for PAYE taxpayers, which then stood at €75,036, was abolished which had the result of increasing by 4 percentage points the top marginal tax rate for PAYE taxpayers. So the two changes - the introduction of the USC and the abolition of the PRSI ceiling-taken together meant that the marginal tax rate for PAYE taxpayers remained unchanged.
In the case of the self-employed, the PRSI income ceiling for the self-employed had been abolished in Budget 2001. Therefore, without further change, the introduction of the USC would have reduced the top marginal rate for these taxpayers by 4 percentage points and would have had the unintended effect of benefiting high earning self-employed income earners, resulting in some high earning self-employed income earners actually making a gain from Budget 2011 in comparison to all other taxpayers.
To avoid the situation in which the top marginal rate for PAYE taxpayers remained unchanged while self-employed taxpayers benefited from a reduction of that rate by 4 percentage points, two further changes were made. A higher rate of USC of 10% was introduced for the self-employed in respect of income in excess of €100,000 and an additional 1 percentage point was added to the self-employed PRSI rate. This restored the self-employed top marginal tax rate to 55%, (41% income tax, 7% USC, an additional 3% USC on income over €100,000 and 4% PRSI).
Note (i): the 'marginal' rate of tax equates to the top rate of tax which an individual is paying.
Note (ii): the 10% rate of USC only applies to income over €100,000. The standard rates of Universal Social Charge apply to income under €100,000 and are:
- 2% on the first €10,036
- 4% on the next €5,980
- 7% on the balance.
An individual whose total income for a year does not exceed €10,036 is exempt from USC.
Note (iii): Self-employed individuals with income of less than €100,000 and PAYE employees pay tax, USC and PRSI at the same marginal rate of 52%.