The income tax changes in the budget are set to involve moves in tax bands, credits and the universal social charge (USC).
As such, their impact on individual taxpayers could be very different, depending on how much they earn and other factors. Here is what you need to know.
The tax band
The most significant change for many middle- and higher-income taxpayers will be in this area.
The income tax band determines how much of your income you pay at the lower, or standard, 20 per cent income tax rate. The rest of your income is charged at the higher 40 per cent rate.
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At the moment the top of the standard rate tax band – or the cut-off point as it is also known – is €44,000 for single people, €48,000 for a single parent and €53,000 for a married couple with one earner.
For couples where both are earning, the maximum is €88,000 – or €44,000 at most for each earner. The detailed rules about how this works for two earning couples are on the Revenue website.
So as a single earner, you pay income tax at 20 per cent on the first €44,000 you earn and 40 per cent on the balance.
It looks like this cut-off point is going to rise by at least €2,000. If this happens, the rate for single earners would increase to €46,000 and all the other figures by the same amount.
What would this mean? For our single earner, the portion of income between €44,000 and €46,000 would be taxed at 20 per cent rather than 40 per cent – for the single earning couple the same would apply to income between €53,000 and €55,000.
This would be a cash gain in each case of €400 (20 per cent of €2,000).
A point worth noting is that – again taking a single earner – you need to earn over €44,000 to benefit from this change and €46,000 to get the full benefit.
One final issue is that as income rises for many people, adjusting the band is necessary to take account of this. Otherwise many people would be paying a slightly higher proportion of their income in tax as they earn more.
Tax credits
These are cash amounts deducted from your tax bill. So when credits are increased, your tax bill falls by the same amount.
Most people who are earning have two basic credits, totalling €4,000 – there is a personal tax credit of €2,000 and a PAYE credit of the same amount. Self-employed people get the personal credit and an earned income credit of the same amount.
There are also special credits, for example for carers, blind people and, more recently, for those who are renting.
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There may be an increase in the main €4,000 credits that most people qualify for, and also increases in some specific credits, for example the one available to those renting.
Increases in the main tax credits will provide straight cash deductions from your tax bill. All taxpayers will benefit from increases in the main credits, but the highest proportional gains (gains as a percentage of income) from higher credits go to lower earners.
The Government may also increase specific tax credits to help certain groups – in recent budgets the carers’ credit and the credit for renters have both increased.
PRSI
This is a charge deducted from your income that helps qualify you for certain benefits. On the basis of 2024 legislation, the rate at which it is charged will increase each year up to 2028. The rise for most employees – the Class A rate – increases from 4.2 per cent now to 4.35 per cent on October 1st this year, and goes to 4.5 per cent on the same date in 2027. This will not be changed in the budget but will have an impact on your income.
USC
The final tax on your income is the Universal Social Charge, introduced after the financial crash, when it incorporated two earlier levies. This is charged at a range of rates from 0.5 per cent to 8 per cent.
One certain change is that the entry point to the 3 per cent rate, now €28,700, will be increased a bit to ensure that people on the new minimum wage level will not pay a USC charge higher than 2 per cent.
The Low Pay Commission has recommended that the minimum wage increases by 79 cent an hour to €14.94, though the Government still has to decide whether to accept this.
Other changes to the USC are also worth watching out for.
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Adding it all up
If you want to compare your tax bill before and after the budget, it is pretty straightforward for those whose entire earnings are from PAYE or self-employed income.
Start by applying the income tax rates, taking into account any tax band changes. Then deduct your PRSI (going up a bit next month) and USC. The USC rates are available on the Revenue website.
When that is done, subtract your tax credits from the resulting tax bill.
