Universal social charge will fall to 4% next year as part of budget

The Government has confirmed it will reduce the 4.5 per cent universal social charge (USC) rate for the first time in five years and increase the standard income tax rate band by €2,000 as part of Budget 2024.

The changes, announced by Minister for Finance Michael McGrath in the Dáil, form part of an overall €1.1 billion tax package set out by the Coalition on Tuesday.

The 4.5 per cent USC rate will fall to 4 per cent in 2024, in a move that Mr McGrath described as the largest USC package since 2016. The Fianna Fáil TD said the cut would cost €350 million this year and an estimated €400 million in 2024.

In line with the increase in the national minimum wage of €1.40 to €12.70 per hour, the Government will raise the entry threshold to the 4 per cent rate to €25,760. The Minister said this would ensure workers on low pay remained outside the higher rates of USC with a full-time worker on minimum wage seeing an increase in net take-home pay of “approximately €2,300 on an annual basis”.

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The Minister also confirmed an increase in the standard rate income tax band – the level at which earners begin to pay the higher rate of income tax – by €2,000 to €42,000.

Personal, PAYE and earned income tax credits will also increase by €100 to €1,875.

“Taking the example of a single person earning €46,000 in 2024, they will see an increase of over €2,000 in their net income as a result of cumulative income tax and USC changes since 2021,” Mr McGrath said.

Welcomed by business groups, the tax package has been strongly criticised by trade union Siptu, which accused the Government on Tuesday of hollowing out the tax base.

In a statement, Siptu general secretary Joe Cunningham said: “These tax cuts are being funded by squeezing public services. By 2026, spending on public services for every man, woman and child is projected by the Government to be cut in real terms. This is despite the challenges of our ageing demographics and rising population. Rather than cutting public service expenditure, we need to increase spending.”

Sarah Meredith, a tax partner at Grant Thornton Ireland, said the changes to USC coupled with the increase in the tax credits and widening of the standard rate band will see the average middle earner household with two incomes totalling €90,000 take home an additional €1,534 in a year.

“Overall, Budget 2024 will have left the vast majority of people better off. For many workers, the total benefit may be [about] €1,000 in a full year, depending on their circumstances,” she said. “While positive, it is disappointing that the issue of our high marginal income tax rates seems to have fallen off the agenda completely, notwithstanding the robust state of our public finances.”