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Monday 4 December 2023 Dublin: 5°C
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Tax Bands

Income tax standard rate cut off point raised to €40,000

The €3,200 rise in the rate will amount to €640 for most PAYE workers.

FINANCE MINISTER PASCHAL Donohoe announced changes to Ireland’s income tax bands as part Budget 2023 today in an income tax package worth €1.1 billion.

The changes will see the income tax standard rate cut off point rising from €36,800 to €40,000 for single people with proportionate increases for married couples and civil partners.

This will see the rate rise from €45,800 to €49,000 for married couples in a one-income household.

This entry point increase means the top tax rate will only apply to income above €40,000 and will amount to €640 for most PAYE workers.

Personal tax credit, employee credit and Earned Income Credit are all set to rise by €75 while the Home Carer Tax Credit increased by €100 to €1,700.

The second Universal Social Charge rate band (2%) has been increased by €1,625 to €22,920 to exclude minimum wage workers. This is in line with the 80-cent-per-hour increase in the national minimum wage which was recently agreed by the Government.

Donohoe said this would ensure that full-time workers on the minimum wage will remain outside the top rates of USC.

The finance minister also extended by one year the concession that applies to those who have a medical card and earn less than €60,000 a year so that those individuals pay a reduced rate of USC.

“One of my core objectives in Budget 2023 is to ensure that workers do not find themselves in a position where they pay more income tax solely because of inflation,” Donohoe told the Dáil.

“There are so many people who work hard, but whose earnings push them outside of access to social welfare benefits. We need to help them too, we need to put money back into their pockets.”

Third income tax rate

Donohoe also said the government will further assess introducing a third rate of income tax.

The Fine Gael minister said the Tax Strategy Group had examined the impact of introducing a third rate and further analysis of its report will take place immediately and conclude before next year’s Summer Economic Statement is completed.

“Were the government to opt for the introduction of a third rate of income tax, it would require considerable change to the system in both the Revenue Commissioners and payroll providers; changes that will need significant lead time to implement,” Donohoe said.

“We are advised this could be done for January 2024.

“As a result, my department will engage with the Revenue Commissioner on the necessary preparatory work, in advance of a policy decision being made by government.”

In his budget speech, the finance minister added that Ireland needs to be mindful of its reliance on corporation tax.

“My department has undertaken significant work on these vulnerabilities, showing that approximately one in every eight euro collected by the state in tax comes from the corporation tax payments of a very small number of firms,” Donohoe said.

“At the same time, our income tax system is heavily reliant on a relatively small number of employees; just 500,000 workers and 10 multinational companies account for over one-third of our total revenue.”

Donohoe said this money cannot be depended upon to fund permanent expenditure. He said the Department of Finance will monitor public finances while excluding any of these “excess” receipts.

Find out exactly how all of the changes will affect you by using the button below.

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