The introduction of the USC, replacing the Income and Health Levies, reduced the top marginal tax rates for both PAYE and self-employed income earners by 4%. In the case of PAYE this allowed for the abolition of the PRSI ceiling and the restoration of the PAYE marginal rate to 52%. However, in the case of the self-employed, where there is no PRSI ceiling, the marginal rate remained reduced. This had the unintended effect of benefiting high earning self-employed income earners.
Therefore, as a transitional measure, a new rate of USC of 10% was introduced in Finance Act 2011 for income in excess of €100,000 arising from self-employment. This restored the self-employed marginal tax rate back to 55% where it was in 2010.
It should be noted that self-employed income earners do not benefit from the PAYE tax credit of €1,650 per annum.