Wednesday, 15 September 2021
Department of Finance
269. To ask the Minister for Finance his views on whether the adult dependant allowance on the State pension (contributory) is double-taxed given that while the income is taxed the tax credit for the person involved is removed; and if he will make a statement on the matter. [43370/21]
I am advised by Revenue that the Social Welfare Consolidation Act 2005 provides for the payment of the contributory State Pension. The payment is made from the Department of Social Protection to an individual who fulfils the statutory criteria. The Act also provides for an increase in the amount of weekly State Pension where the beneficiary of the pension has a qualified adult dependant. The qualified adult portion is described as an “increase” in the pension and is payable in respect of a spouse, civil partner or cohabitant who is being financially maintained and whose income is not greater than a specified amount.
The tax treatment of the qualifying adult increase is contained in section 126(2B) Taxes Consolidation Act 1997 (TCA). It provides that, for all the purposes of the Income Tax Act, any increase in the State Pension in respect of a qualified adult dependant is treated as if it arises to the beneficiary of the pension. The pension payment is therefore not subject to double taxation, rather it is taxed as the income of the individual who is the beneficiary of the pension, that is, the pensioner. Since the increase is treated as the income of the beneficiary for tax purposes, only one employee (PAYE) tax credit is available in respect of the State Pension, including the qualified adult dependent increase.
I am further advised by Revenue that, by virtue of section 188 TCA, a person aged 65 and over is exempt from income tax where his or her total income is less than the relevant exemption limit. For 2021 the limits are €36,000 for a married couple or civil partners and €18,000 for a single individual. An individual or couple whose income is below the respective limit can also apply directly to their financial institution to have interest paid without deduction of Deposit Interest Retention Tax (DIRT).
In addition, section 464 TCA provides for an “Age Tax Credit” for individuals aged 65 or over, currently €245 for single individuals or €490 for married people or civil partners living together.
Individuals aged 66 or over are also not liable to pay PRSI and all payments made by the Department of Social Protection are exempt from the Universal Social Charge.