Why am I paying so much tax on my pension?
Q&A:I have recently qualified for the contributory old age pension together with an increase for a qualified adult which is paid directly to my spouse. The amounts on a weekly basis are €230.30 for the basic pension and €153.50 for the qualified adult.
We are assessed for income tax on a joint assessment basis but within this there is a requirement to split the income between self and spouse. I had assumed that the basic €230.30 would be shown as self and the increase for qualified shown as spouse. Given our particular circumstances the tax rates to be applied would be 48 per cent, including USC, for myself and 20per cent for spouse.
However, to my dismay I have now been told by Revenue that I am deemed the beneficiary of the total pension and that the total amount of €383.80 should be included as income of self and therefore is subject to tax at 48 per cent.
The net result of this interpretation is that on my marginal income of €230.30 I am asked to pay tax of €184.20 (48 per cent of €383.80) leaving me with €46.10 per week. I cannot comprehend how this treatment can be seen as reasonable or a correct interpretation. I quite understand that the total pension is liable to tax, but not in a way which gives rise to an effective marginal tax rate of 80 per cent on one partner’s share of the pension.
Mr G McL, Dublin
Back in 2007, then social welfare minister Martin Cullen set down that qualified adult allowances be paid direct to the qualifying adult in order to ensure that they had some independent income.
That’s all well and good. However, the Revenue continues, not unreasonably, to rely on the fact that the allowance is an additional payment on top of your pension and is therefore part of your income. It cites the wording of the Social Welfare Consolidation Act 2005 where, in section 112, that the weekly pension rate “shall be increased” by the amount of the adult allowance. Its view is that the total payment is one pension payment.
It may not sound very fair but paying the money directly to the qualifying adult was a political decision and not one made under tax law.
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