Boost for all taxpayers as bands and credits grow

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Pressures to index income tax breaks and credits to inflation failed in Budget 2022, but the minister announced broadening tax brackets and credit increases that will increase the take-home pay for many workers.

The income tax bracket at the normal rate will be increased by € 1,500. This means that anyone earning up to € 36,800 will pay tax at the base rate of 20%.

Married couples or civil partners with one income will not enter the top 40 percent tax bracket until their income reaches € 45,800.

“As prices rise and inflation returns, the government wants to ease the pressure on the cost of living that many feel,” said Finance Minister Paschal Donohoe. “These changes will benefit everyone who pays income taxes. “

“For higher rate taxpayers, the additional net income is almost € 35 per month or € 415 per year,” said Michael Rooney, EY tax partner.

This figure also includes the impact of increases in personal tax credits announced by Donohoe and changes in the Universal Social Charge (USC) scheme.

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The annual personal tax credit will be increased by € 50. The same amount will be added to the employee tax credit and the labor income tax credit, which together cover PAYE workers and the self-employed. This will bring each of the credits to € 1,700 per year, compared to € 1,650 previously.

On USC, the minister widened the range by 2 percent from an income of € 12,013 to € 21,295 from early 2022 – from € 20,687 previously. The change was made to ensure that people earning the national minimum wage, which will increase by 30 cents an hour to € 10.50, will not find themselves paying USC at the higher rate of 4.5 percent.

Salary supports

The American Chamber of Commerce in Ireland, which here represents US multinationals, welcomed the decision to increase income tax brackets and tax credits, noting that among its members, “93% call tax staff as a barrier to attracting / retaining talent, with 40% of them. percent see it as an obstacle to further investment and expansion ”.

The government collected 22.6 billion euros in income tax last year, just 1.3% less than in 2019, even though 664,000 people – or about 25% of the labor force – received government wage support at some point in 2020, EY accountants said.

“The importance and resilience of the income tax system are clear, but our economic rebound and resulting inflationary pressures have forced the minister to increase tax brackets and USC and increase tax credits , so that all taxpayers can feel like they have a little more net income in their pockets, ”said Michael Rooney, EU tax partner.

The tax measures are expected to cost 520 million euros next year and 597 million euros in a full year. The changes to the USC tapes will cost the Treasury an additional 22 million euros in 2022 and 26 million euros in a full year.

“Time will tell if Ireland can avoid the tax increases that many other economies have to apply to fix their finances,” said Neil Gibson, chief economist at EY Ireland.

Irish Tax Institute President Karen Frawley noted that prior to this year’s budget personal tax credits had remained unchanged since 2011 when they were reduced from € 1,830 to € 1,650. .

“Our effective personal tax rates for middle and top wages are high by international standards and have changed very little since tax increases introduced during the financial crisis more than a decade ago,” said Ms Frawley .

“Irish workers pay more income tax on average than their counterparts in France, Germany, the UK or Sweden. High marginal rates make it difficult to attract skilled workers, especially when the labor market is tight, ”Ms. Frawley added.

She said the changes to bands and rates announced by the minister were a good start. “But if we are to remain an attractive place to invest, a more comprehensive review of our personal income tax system will be necessary.

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