Wednesday, 18 November 2020
Department of Finance
64. To ask the Minister for Finance if tax-paying pensioners on pensions alone have no entitlement to either earned income credits despite the Revenue Commissioners classification of pensions as earned income; his views on whether this amount to discrimination against the earned income of tax paying pensioners; his plans to address the matter; and if he will make a statement on the matter. [37371/20]
I would like to assure the Deputy that, in addition to the basic personal tax credit, pensioners are entitled to claim the Employee or PAYE Tax Credit in respect of their pension income because it is taxable under Schedule E. The maximum Employee Tax Credit available for 2020 is €1,650.
The Earned Income Tax Credit is available to an individual whose income in a tax year includes, or is made up of, qualifying earned income, which means earned income which does not qualify for relief under the Employee Tax Credit. This includes, for example, self-employment income from a trade or profession and employment income earned by a proprietary director and his/her spouse or civil partner. The Earned Income Tax Credit is being increased from €1,500 to €1,650 in this year’s Finance Bill and this increase will take effect for the 2020 tax year and subsequent years.
An individual may be eligible for both the Employee Tax Credit and the Earned Income Tax Credit, if they have qualifying sources of income, but the maximum combined credit available for the year cannot exceed €1,650. This is the position for all taxpayers in receipt of self-employment and employment income.
The Deputy should note that social welfare pensions are taxable under Schedule E but are not subject to deductions under the PAYE system. Pensioners usually have their tax liability on social welfare pensions collected by a reduction in their tax credits. This is sometimes called “coding”.
Pensioners aged 65 years or over are also entitled to the Age Tax Credit, which is €245 for single persons and €490 for married couples and civil partners.
I trust this explains the issue and clarifies for the Deputy that there is no discrimination arising in the manner suggested.