Taxing times for pensioners
OVER the past number of weeks it has been impossible to ignore the publicity surrounding the intention of the Revenue Commissioners to collect tax from those in receipt of a State pension on top of other additional income. Many people have expressed their dismay, saying that the manner in which this arose has lead to increased anxiety and worry among pensioners, which is understandable. However, the law currently states that the Revenue Commissioners are fully entitled to do this.
Fortunately, in the majority of cases, pensioners will not have any additional tax to pay and indeed some may be entitled to a refund. However, the Revenue Commissioners have sent approximately 115,000 letters stating that a liability does arise.
How has all this come about?
Basically the Department of Social Protection and the Revenue Commissioners have decided to share information. Following a review by the Revenue Commissioners of State pension payments, they have arrived at those who don't have a liability and those who do. They have acted upon this and sent the relevant correspondence to those affected. Am I liable to tax? If your sole source of income is a Department of Social Protection (DSP) pension then you will not be liable to tax. A DSP pension includes the State pension, the transition pension (for those aged between 65 and 66), a widow or widowers pension, a surviving civil partner's pension and an Invalidity pension.
If you have additional income on top of this, e.g. a pension arising from your employment (or your spouse's employment) then you may be liable to tax. This depends on the level of overall income that you have.
How much income can I earn so that I will not be liable to tax?
In 2012, if you are single or widowed, over 65 and earn €18,000 or less in total, you will not be liable to tax. If you are married and over 65 the exemption limit is €36,000. These exemption limits are the same as in 2011. How is tax collected? The Revenue Commissioners are currently focusing on those in receipt of both a DSP pension and a pension from an employment. In broad terms, PAYE tax will be withheld by the pension provider on your employment pension to cover any liability from 2012 onwards. In effect the amount you receive in your employment pension may be reduced.
Will I have a liability for prior years?
The Revenue
www.psc.ie Commissioners have said, generally, that where there are significant tax liabilities arising they may look to collect this tax but nothing has of yet been formally announced and the situation is currently being reviewed.
Tax on Deposit Interest (DIRT)
As a side note, many people hold money on deposit to fund their retirement. In some instances DIRT is deducted on this interest. The current rate of DIRT is 30% so if you earned €100 gross deposit interest you may only get €70 into your bank account, the balance going in tax.
However, in certain circumstances you may not be liable to DIRT if you or your spouse are aged 65 or over and your income is below the exemption limits outlined previously. If you have large savings the deposit interest and consequently the DIRT can be significant. In such instances, it may be worth reviewing the rate of deposit interest you earn and also whether you are entitled to the DIRT exemption. If you can avail of the exemption you can earn deposit interest gross by completing a Form DE1 available from your financial institution.
In addition, if you have already suffered DIRT, you may be able to get a refund of this if you or your spouse are aged 65 or over and your income is below the exemption limits outlined previously.
We can deal with any tax issues you may have. In addition, PSC Wealth Plus Limited are independent financial advisors and can advise on current deposit interest rates and assist in the opening of deposit accounts. No fee is charged for this service.