I am advised by Revenue that both the State Contributory Pension and the State Non-Contributory Pension are chargeable to income tax, but not to Universal Social Charge (USC) or Pay Related Social Insurance (PRSI).
Where a person is in receipt of both a private pension and a State pension, any income tax that may be due in respect of the State pension is effectively collected by reducing the annual income tax credits in relation to the private pension by the value of the State pension. Thus, for example, in the case of a person in receipt of a State pension and a private pension, an increase of €5 per week in the State pension could mean that tax on an additional €260 would have to be collected over the course of the year by reducing the person’s tax credits in relation to the private pension. €260 extra income at the standard rate of income tax of 20% gives rise to a reduction in tax credits of €52 for the year or €4.34 per month. For standard rate taxpayers this means the individual, or couple, would retain almost 80% of the weekly increase. In the case of higher rate taxpayers, the amount retained would represent almost 60% of the weekly increase.
However, in the context of the Deputy’s question as to what assistance is provided generally to State pensioners in the income tax system, I would draw his attention to section 188 of the Taxes Consolidation Act (TCA) 1997 in particular. That section provides that a person aged 65 and over is fully exempt from income tax where his or her total income from all sources is less than the relevant exemption limit. For 2019, the exemption limits are €36,000 for a married couple or civil partners and €18,000 for a single individual. An individual or couple whose income is below the respective limit can also apply directly to their financial institution to have interest due on deposits accounts paid without any deduction of Deposit Interest Retention Tax (DIRT).
For those taxpayers, who do not qualify for exemption under section 188 of the TCA 1997, section 464 TCA 1997 provides for an “Age Tax Credit” for all individuals aged 65 or over. This credit is currently set at €245 for single individuals or €490 for married people.
In the broader context of limited Government resources, it is my position that an appropriate amount of funds are currently allocated, to ensure a fair and consistent tax treatment for those over the age of 65 through these exemptions and credits.