Is maintenance payment liable to PRSI deduction?

Q&A: There has been considerable coverage on the extension of PRSI to other forms of income recently. Since 2003 I have been trying to find out the statutory basis for having to pay PRSI on the maintenance I receive from my ex-husband.

I understand that maintenance is taxed but my ex-husband’s solicitor has said more than once I shouldn’t be hit for PRSI on it as well. I have phoned the Revenue several times and have written to the PRSI office in Pearse St but have been sent from pillar to post.

I have always paid the tax and PRSI shown on the assessments, which includes PRSI on the maintenance, but a taxpayer should be able to get a straight answer on a simple question, albeit from a Government department, in less than a decade.

Ms G McL, Dublin

Your husband’s solicitor is incorrect. Revenue is quite clear that maintenance payments are subject to both income tax and PRSI.

Where the solicitor may be getting confused is in relation to a change in the rules in 2000. Until that time, PRSI was payable by both the person making “legally enforceable” maintenance payments and the person in receipt of such payments. The change took place under section 23 of the Social Welfare Act 2000 and entitled the person making the payments to return of PRSI paid on that money.

That aside, the tax provisions for maintenance payments appear to be covered under the general provisions of income tax legislation – most recently the Taxes Consolidation Act 1997.

As far as I can determine, the relevant sections are 1025 and 1026 of that Act (see irishstatutebook.ie). The related PRSI provisions are gathered in the Social Welfare (Consolidation) Act 2005.

The bottom line is that this is taxable income from the outset. If it remained with your former husband, it would be taxed at source, or under provisions relating to the self-employed. As he has transferred this income under a legally enforceable maintenance arrangement to you, the tax liability also transfers.

If you are already taxed under the PAYE system, it is possible the Revenue will adjust your tax credits to reflect this income. More likely – and as seems to be the case here – you will be treated for tax purposes as a self-employed person.

Specifically in relation to PRSI, Class S contributions – which are deducted at 4 per cent and which apply to the self-employed – also cover "people with income from investments, rents or maintenance payments". The Department of Social Protection offers some guidance for PRSI on self-employed persons at iti.ms/WnDQly.

I have used “legally enforceable” on several occasions above: they are key qualifying words. My understanding is that in the case of voluntary maintenance arrangements, the liability to income tax and PRSI would remain with the spouse making the payments.

Interestingly, the same is not true for child maintenance payments. In that case, the income remains liable to tax and PRSI for the person making the payment – ie, the former spouse – even though the payment is passed on for the benefit of the child(ren).

Finally, in relation to your pursuit of a categoric answer to what is a straightforward query, it is not unreasonable to expect that from either the Revenue or the PRSI section of the Department of Social Protection. It is an indictment of both that you have got little enlightenment from either over the course of a decade.

Is there a midpoint in tax band?

With regard to local property tax, am I correct in thinking there is no midpoint assessment for the €100,000 band, only for the subsequent bands at €50,000 increments? For instance, my country cottage, falling within the €100,000 band, will incur a charge of €100,000 x 0.18 = €180.

Mr BK, email

The good news is that there will be a midpoint for the initial €0-€100,000 band in the same way as for all subsequent €50,000 bands. In your illustration, the local property tax will be levied on properties worth up to €100,000 at the €50,000 midpoint. As you correctly point out, tax due will be assessed by multiplying this €50,000 midpoint by 0.18 per cent, which will give a full-year liability of €90. This year, as the tax kicks in only in July, the charge will be €45.

If your country cottage is a second or holiday home, you will still have to pay the NPPR (non-principal private residence) charge of €200 this year, although this charge will disappear at the end of 2013.

USC change for over -70s is bizarre

The change in USC for the over-70s earning in excess of €60,000 is bizarre. Although some have the impression that the 7 per cent rate will apply only to income over €60,000 (just as the rumoured 10 per cent was going to apply to income over €100,000), what the Budget speech says is that it will apply to the over-70s with income above €60,000 (ie, the 7 per cent rate will apply to all of their income over the first €16,016). This is confirmed in the relevant financial resolution.

Consider then the following: Mr A has a pension of €60,000 and Mr B has a pension of €60,100. (Both are over 70 and have no other relevant income: it’s assumed the social welfare pension is not reckonable income for USC purposes).

Mr A’s USC liability is €2,199 but Mr B’s is €3,526, and he pays additional income tax of €41. For Mr B’s extra €100 therefore, his marginal tax rate is 1,367 per cent and he is now worse off than Mr A by about €1,260.

Even on an income of €70,000, the excess over €60,000 will attract a marginal tax rate of 60 per cent, so the anomaly persists even beyond that level. Is it possible that legislation providing for such outcomes will actually be implemented?

Mr MF, Dublin

Is it possible? Yes. Will it happen? We’ll have to await publication of the Finance Bill to be sure.

In relation to income tax, there is provision for marginal relief to ensure people fractionally above a threshold – such as the one you highlight – do not find themselves unreasonably disadvantaged, and many argue that the universal social charge (USC) is just another form of income tax.

The issue, as you note, is that people over the age of 70 with income above €60,000 will now be liable to the higher 7 per cent USC rate on all their income above €16,016 and not just on the portion above €60,000, as I incorrectly suggested previously.

That would make someone close to the threshold worse off if their income increased only marginally.

* This column is a reader service and is not intended to replace professional advice. Please send your questions to QA, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com.