HIGH EARNERS HIT HARDEST BECAUSE OF USC AND PRSI
“The housing assistance payment is a new payment available since March 2017,” said Lorraine Hennessy, head of training with the INOU. “Before March 2017, the housing assistance payment was only to available to those in a homeless situation. This is a housing support payment made through a local authority to those on the housing list who are in private rental accommodation.” High earners are probably the biggest losers of the Budget measures announced since the recession. These people will come home with less pay after taxes next year than they did at the height of the Celtic Tiger in 2006.
“The Budget measures over the last number of years has had a greater impact on high earners — particularly individuals earning more than €70,000,” said Alison Mchugh, director of private clients in Deloitte.
“This is largely due to the Universal Social Charge which increases the overall effective rate of tax. PRSI is also significantly higher.”
In this paper’s analysis, we examined how much worse off a multi-millionaire and a highly skilled IT professional will be next year than they were in 2006. are no longer living at home.
At €1,204,649, your takehome pay will be €207,521 less next year than it was in 2006, according to Lisa Mccourt, senior manager with PWC. You took home €1,412,170 after tax in 2006. So you’re €3,991 a week worse off under Budget 2018 than you were at the height of the Celtic Tiger.
The main reason your takehome pay has dived so much since 2006 is the USC. Your high earnings mean you’re getting hit for the top rate of 11pc. The USC didn’t exist in 2006. The only tax levy that existed in that year was the health levy. You lost €50,000 to tax levies (that is, the health levy) in 2006. Next year, you’ll lose €209,011 to tax levies (that is, the USC).
On the plus side, under Budget 2018, there has also been an increase in the amount you can earn before getting hit for the higher rate of income tax. At 40pc, you’re also paying a lower income tax rate than the 42pc paid in 2006.
However, the impact of the USC on your pocket more than wipes out your gains from these income tax changes.
“While this man has seen improvements on income tax since 2006, the USC is considerably higher than the health levy which was in operation in 2006,” said Mccourt.
“PRSI has also had many changes since 2006 — which results in a much higher USC and PRSI bill for this individual in 2018. This man’s PRSI bill has increased significantly between 2006 and 2018 due to a number of factors including the abolition of the PRSI earnings limit and weekly exemption, and the introduction of a charge to PRSI on ‘unearned income’ — that is, his investment income.”
The PRSI earnings limit had previously restricted the amount of earnings which you paid PRSI while the weekly exemption allowed you to earn a certain amount each week without getting hit for PRSI. The abolition of both of these measures significantly increased the amount of PRSI paid by many workers. You’re a 30-year-old single man earning €100,000. You’re a highly skilled IT employee working for a big US multinational. You have no children. At €61,199, you’ll take home €3,219 less pay in 2018 than you did in 2006, according to Mchugh. This means you’re €62 a week worse off than you would have been in 2006. This is largely due to the USC and the increases in PRSI. Punitive taxes on highly skilled workers such as this could damage Ireland’s competitiveness as it could encourage them to work abroad.
EY examined whether an individual earning €50,000 would be better off under Budget 2018 as a PAYE worker, a public servant or a self-employed individual. The individual is single and has no children. It is the self-employed individual whose takehome pay has risen most since 2006 — largely due to the introduction of the earned income tax credit in 2016 and the increase of that credit in 2017 and 2018. The earned income tax credit was introduced to address a discrepancy whereby employees could get a tax credit for PAYE income earned — but self-employed individuals couldn’t get a tax credit for income they earned. There was no earned income tax credit in 2006.
A self-employed individual earning €50,000 will take home €878 more next year than he did in 2006. A self-employed individual earning €50,000 is about €17 a week better off under Budget 2018 than he was at the height of the boom.
The increase in the amount that all taxpayers can earn before getting hit for the higher rate of income tax has also benefited the self-employed individual — as has the reduction in the top rate of income tax.
A PAYE worker earning €50,000 will take home €3 more under Budget 2018 than he did in 2006, according to EY. Although the self-employed individual has seen the biggest increase in take-home pay since 2006, it is still the PAYE worker who is coming home with more money after tax.
The PAYE worker in this case takes home €36,548 of his pay after tax — while the self-employed individual takes home €36,048.
By contrast, a public servant on €50,000 will take home €1,272 less pay (or €24.50 less a week) under Budget 2018 than he did in 2006. This is largely due to the impact of the pension levy on the public servant’s income. So when it comes to take-home pay, a public servant earning €50,000 is in a much worse position than a self-employed person or PAYE worker on the same income.