The Minister for Finance introduced his changes to income tax, income levy and PRSI by summarising that a person earning the minimum wage, which is about €17,500 per year, will be asked to pay €350 per annum or €7 per week, representing 2% of their wages; a person earning €50,000 per year will pay €1,500 or €29 per week, which is 4% of their income; a person earning €300,000 per year will pay €15,655 or €300 per week, or 9% of their income.
However, the key aspect to analysing the change in a taxpayer's take-home pay is the change in thresholds. For example, a person earning €100,000 has to pay an additional €4,600 (and not double €1,500 that a person earning €50,000 has to pay). The reason for this exponential increase is that €75,000 is now the threshold for the PRSI ceiling, the threshold for the 4% income levy and the threshold for the higher health levy.
Income Levy - from 1 May
The income levy rates will be doubled to 2%, 4% and 6%.
The exemption threshold will be €15,028. The 4% rate will apply to income in excess of €75,036 and the 6% rate to income in excess of €174,980.
Health Levy - from 1 May
The health levy rates will double to 4% and 5%. The entry point to the higher rate will be €75,036.
PRSI - from 1 May
The PRSI ceiling will be increased from €52,000 to €75,036.
INCOME TAX
Mortgage Interest Relief
Mortgage interest relief will be discontinued for any mortgage over 7 years from 1 May.
This change means the relief will now be targeted on those who bought their homes when prices were at their peak. It will also support those who now wish to move, improve or buy for the first time.
This change in the relief is far from straightforward and it will be necessary to review the Finance Bill to be satisfied on the various mortgage scenarios and whether mortgage interest relief will apply.
Restriction in Interest Relief - Rented Residential Property
The level at which interest re-payments can be claimed against tax for residential rental properties is being reduced from the existing 100% to 75%.
This measure will apply to both new and existing mortgages. Commercial properties are not affected.
Deposit Interest Retention Tax (DIRT) and Taxes on Life Assurance Policies and Investment Funds
The rates of retention tax that apply to deposit interest, together with the rates of tax that apply to (a) life assurance policies and (b) investment funds, are being increased by 2 percentage points in each case and will now be 25% and 28% respectively.
The increased rates will apply to payments, including deemed payments, made from midnight on 7 April 2009.
Public Service Pension Levy
The Minister is reviewing the operation of the public service pension levy to address any issues of fairness. By taking into account of the impact of the tax measures announced in the Budget, the Minister is proposing a slight recasting of the structure of the levy to reduce the impact on the lowest paid public servants with a small increase at the higher levels.