HIGH EARN­ERS HIT HARD­EST BE­CAUSE OF USC AND PRSI

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

“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.

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