Changes in credits will mean gains for majority

TaxationThe Minister for Finance's tweaking of tax credits, bands and reliefs will leave most families and single workers marginally better off in 2005.

Mr Cowen increased the employee credit for PAYE workers by €230 to €1,270 per annum.

More modest increases were made to personal tax credits, which rose to €1,580 for a single person and €3,160 for a married couple, an increase of €60 and €120 respectively.

Minimum wage earners have been taken out of the tax net as a result of these changes.

For the first time in three years, the standard rate band was widened.

The point at which a single worker starts paying tax at the higher rate of 42 per cent rather than the standard rate of 20 per cent is now €29,400 - an increase of €1,400.

This measure effectively adds €308 to the annual take-home pay of a single person who has a gross income of more than €29,400.

The standard rate tax band for a married couple with one income also increased by €1,400 to €38,400, while the point at which a dual-income married couple starts paying tax at the higher rate is now €58,800 - an increase of €2,800.

One-parent families also benefited from Mr Cowen's package of higher tax credits. The one-parent family tax credit rose by €60 to €1,580 and the one-parent/widowed parent standard rate band increased from €32,000 to €33,400.

The tax exemption limits for income earned by people aged 65 and over increased by €1,000 per person to €16,500 for a single or widowed person and €33,000 for a married couple.

The threshold at which people start paying the 2 per cent health levy rose from €18,512 to €20,800. This means the health levy will only be applied to people earning €400 or more a week as opposed to the current weekly threshold of €356.

In 2005, a single PAYE worker earning gross taxable income of €30,000 will see 16 per cent of their annual income deducted by their employer and passed onto the Revenue Commissioners. This is down from 18.1 per cent in 2004.

Higher earners will also hand over a lower percentage of their income in tax next year. A single employee earning €60,000 will see their average tax rate fall from 32 per cent to just over 31 per cent in 2005.

But the increase in the amount of earnings on which people must pay PRSI from €42,160 to €44,180 offsets some of the gains for higher earners.

In other changes, the Minister made the tax relief available on rent slightly more generous.

The maximum amount of rent paid on which relief can be claimed at the standard rate rose from €1,270 to €1,500 for a single person and double that amount for a widowed person or married couple.

This results in a tax credit of €300 per annum for a single person, up from €254.

Since January 2004, the application of PAYE and PRSI to employee benefits for the first time has significantly reduced the net income of many workers who receive benefits-in-kind (BIK) such as company cars.

However, the Minister made only one change to the BIK system.

He increased the tax exemption threshold for once-off small benefits from €150 to €250.