Emer Higgins (Dublin Mid West, Fine Gael)
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371. To ask the Minister for Finance further to Parliamentary Question No. 193 of 17 February 2022, if the tax exemption limit for persons aged 65 years and over will be reviewed, given the Exchequer surplus in 2022 which may make it possible to increase the tax exemption limit while remaining within the fiscal parameters; and if he will make a statement on the matter. [2082/23]

Michael McGrath (Cork South Central, Fianna Fail)
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As the Deputy will be aware, Budget 2023 included a significant income tax package amounting to a cost of €1.13 billion in 2023 and consisted of both personal income tax and Universal Social Charge (USC) changes.  In relation to the income tax changes, the Standard Rate Cut-Off Point for single persons was increased by €3,200 or 8.7 per cent from €36,800 to €40,000, with commensurate increases for persons who are married/in civil partnerships.   In addition, the main tax credits – the personal tax credit, employee tax credit and earned income credit - were all increased by just over 4.4 per cent or €75 each from €1,700 to €1,775.   The home carer tax credit was also increased by €100 from €1,600 to €1,700 which equates to a 6.3 per cent increase.    These tax changes will provide a real benefit to all individuals who pay income tax by reducing their overall income tax liability.    

Turning to the USC, the ceiling of the band for the 2 per cent rate was also increased by €1,625 from €21,295 to €22,920.   This will ensure that a full-time worker on the minimum wage, who benefited from the increase in the hourly minimum wage rate from €10.50 to €11.30, will remain outside the top rates of USC.   It is also worth pointing out that the USC concession for medical card holders who earn less than €60,000 per annum was extended for a further year, which means such individuals will continue to pay a reduced rate of USC in 2023.    Further details can be located at the following link:   

www.gov.ie/en/publication/ccc22-budget-2023-taxation-measures/.

The age exemption applies for any year of assessment where an individual is aged 65 years or over and his or her total income does not exceed €18,000. Where an individual is a married person or civil partner and is jointly assessed to tax, the age exemption will apply where either individual is aged 65 or over and where the couple’s total income does not exceed €36,000. The relevant income thresholds may be increased further if the individual has a qualifying child. The thresholds are increased by €575 in respect of both the first and second child, and €830 in respect of each subsequent child.

Marginal relief may be available where the individual’s or couple’s income exceeds the relevant exemption limit but is less than twice that amount. Where marginal relief applies the individual or couple is taxed at 40% on all income above the exemption limit to a ceiling of twice the exemption limit.  Once the income exceeds twice the exemption limit marginal relief is no longer available and the individual pays tax under the normal tax system. 

It should be noted, however, that where the individual’s income is greater than the exemption limit but below twice that limit, the taxpayer is always given the benefit of the more favourable treatment as between the use of marginal relief or the normal tax system of credits and bands.  

Budget 2023 did not provide for an increase in the above thresholds and there are no current plans to increase these thresholds further.  However, it is important to take into account that the current tax arrangements for persons aged 65 or older compare favourably with the tax treatment of the generality of taxpayers.   For example, persons aged 65 or over may also avail of the age tax credit, which currently amounts to €245 per year for single persons or €490 per year for married couples or civil partners.  Reduced rates of USC also apply for persons aged 70 or older where their total income is €60,000 or less. Furthermore, the State Contributory Pension and the State Non-Contributory Pension are not chargeable to USC or Pay Related Social Insurance. 

It should be noted that the recent Commission on Taxation and Welfare (CoTW) recommended that age should be removed as a factor for determining the charge to Income Tax and Universal Social Charge.  The report stated that the determination of an individual’s tax treatment based on age narrows the base and breaches the concept of horizontal equity, whereby those with similar income should pay the same proportion of that income in taxes. It also breaches the concept of intergenerational equity. Further details are set out in the Report of the Commission, located at the following link: www.gov.ie/en/publication/7fbeb-report-of-the-commission/.

Finally, as signalled in the Budget, my Department has begun initial work on developing a medium-term roadmap for personal tax reform, taking account of the recent report of the CoTW, and considering a range of measures across income tax, USC and PRSI together with other related personal taxation issues.

I expect that, when completed, this work will help inform deliberations relating to a number of aspects of the income tax system in the context of future budgets.