Will my pension be hit for the 7 per cent USC?

Personal Finance:Your queries answered

Q

I am currently in receipt of an occupational pension in excess of €16,000 per annum. I will be 70 years old in 2011. My spouse is now 70. Will I be liable for the 7 per cent universal social charge on income in excess of the threshold? Does my wife’s age not exempt me?

I understand my contributory old age pension is exempt.

- Mr JH, e-mail

A

The good news is that you will not be liable for the 7 per cent deduction under the new universal social charge, but not on account of your wife.

The rules are very precise and one of the premises is that everyone is treated individually. The fact that your wife is over the age of 70 would, in itself, have no impact on your liability for the charge at the full rate.

This is the case even where spouses are treated as a couple for the purposes of income tax by the Revenue Commissioners.

However, as you are aware, you will not be liable to the 7 per cent levy once you pass the age of 70 yourself. At that point, the 4 per cent rate, which kicks in at income over €10,036, will be your maximum rate – even if your income exceeds the €16,016 threshold at which younger people will find themselves facing the 7 per cent charge.

The other good news is that, according to the Revenue’s briefing document, a person who turns 70 in a given year will benefit from the 4 per cent maximum charge for the whole year. In your case, as the charge only comes in next year – the year you turn 70 – you will not be liable to the 7 per cent charge.

As the universal social charge is levied on a weekly/monthly basis, it may be that you find yourself charged at the higher rate for the first few months of the year until your birthday. In that event, your employer or pension provider may be able to adjust the charge over the balance of the year to take account of the changed circumstances.

If that is not possible, you will have to claim a refund from the revenue using a universal social charge refund claim form which you will be able to download from the Revenue website or request at your local tax office.

Will my State pension be hit with charge?

Q

I don’t think that the normal State pension (contributory or non-contributory) is exempt from the universal social charge. Department of Social Protection pensions appear to be particular defined payments.

- Mr MT, e-mail

A

Your question certainly caused some alarm because because were that position correct, people with no income other than a state pension would find themselves liable for the universal social charge even though, over the age of 66, they are not liable for PRSI.

Prior to the new regime, people over the age of 66 were also exempt from the health levy on social welfare payments.

The rules of the universal social charge state clearly that “all Department of Social Protection payments” are exempt from the charge.

For peace of mind, I contacted the Department and, following further checks, they assure me that the state pension is exempt.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@ irishtimes.com