Personal Tax

In the words of the minister, Budget 2023 was a cost of living Budget, and while much of the measures to help citizens have been effected through the social welfare system, the minister has chosen the tax and USC system to be part of the transmission for cost of living subsidies. As a result, the measures are intended to benefit most taxpayers, and will be welcomed by middle income earners in particular. 

The minister made specific reference to the recently released Commission on Taxation and Welfare report, as well as papers published this month by the Tax Strategy Group, and confirmed that he has requested that his department consider a range of recommendations across PRSI, USC and income tax, with a view to developing a medium term road map for personal taxation reform. Further, the minister has confirmed that the impact of introducing an intermediate third rate of income tax will be considered. The minister outlined that engagement will be required with the Revenue Commissioners in advance of a policy decision being made and that change could be implemented for January 2024. 

The specific measures announced in the minister’s speech today are detailed below. 

For the fifth Budget speech in a row, no adjustments have been made to the USC rates. Additionally, no explicit mention was made of the 3% USC levy which applies to certain non-employment income. 

The second band of USC has been adjusted to ensure a full-time worker earning the new minimum wage of €11.30 per hour will remain outside of the higher rates of USC. This will be achieved by increasing the ceiling at which the 2% rate applies from €21,295 to €22,920. The extension of the band will also result in a modest decrease in USC for people with income in excess of these levels. The increase in the minimum wage and the USC band will both apply from 1 January 2023.

The reduced rate of USC for medical card holders who earn less than €60,000 per annum was due to expire at the end of 2022 but has again been extended by a year to the end of 2023. There is also no change in USC for those earning less than €60,000 per annum who are over 70 years of age. The position for both cohorts will likely be revisited in next year’s Budget. 

Full details of the revised rates and bands are included in the Tax Rates & Credits 2023 table at the end of this publication. 

The point at which the higher rate of income tax will apply has increased by €3,200 to €40,000. This is the equivalent of an increase in the band of 8.7%, which is in line with the growth in the consumer price index in the year to 31 August 2022. This increase should deliver an annual saving of €640 for a single person earning more than €40,000 per annum and up to €1,280 for married couples/civil partners. 

As mentioned above, the Tax Strategy Group recently published papers covering a broad array of topics. One of the topics was the introduction of a third rate of income tax between the current 20% and 40% rates. While there could be some benefit in easing the burden on taxpayers whose taxable income marginally exceeds the standard rate band, the introduction of an intermediate rate would need to be carefully considered in terms of its practical impact (e.g. updates to payroll software and Revenue’s own systems). The implications for existing tax reliefs such as pension contributions would also have to be considered. Nevertheless, the minister appears to be committed to considering its implementation for the tax year 2024. 

The personal tax credit, employee tax credit and earned income credit will each rise by €75, from €1,700 to €1,775. This represents an increase of 4.41% but there was no mention of index linking these credits to inflation or any wage increases. 

The minister also provided for an increase of €100 to the home carer tax credit, from €1,600 to €1,700, and the extension of the sea-going naval personnel tax credit to 2023.