When the USC was introduced in Budget 2011, individuals aged 70 years and over and individuals holding a full medical card were not liable to the top rates of the charge. The maximum rate of charge for such individuals at that time was 4%, irrespective of the level of their income, unless they had non-PAYE income (such as investment or self-employment income) in excess of €100,000 for a tax year, in which case the maximum rate was increased to 7% on the amount of non-PAYE income in excess of €100,000.
In Budget 2013, due to the prevailing budgetary constraints and the need to raise revenue, the Government decided that the reduced rates of USC for those aged 70 years and over and for medical card holders would be available only to those with annual income of up to €60,000, with effect from 1 January 2013. It is important to point out that this measure ensures equity between all citizens with incomes in excess of €60,000, while ensuring that those aged over 70 and medical card holders on more modest incomes do not suffer the higher rates of USC. While step effects are never ideal, they are often a feature of tax systems with exemption thresholds, as the application of a tax on this basis allows those with incomes below the threshold to be supported by means of the exemption, while also achieving the required yield from the tax.
It is important to state that the State Contributory Pension and the State Non-Contributory Pension are not chargeable to Universal Social Charge (USC) or Pay Related Social Insurance (PRSI).
Furthermore, other taxation supports for the over 65s may apply depending on the personal circumstances of the individual. They include the Age Tax Credit which is available to all individuals aged 65 or over who do not qualify for an exemption from income tax. This credit is currently set at €245 for single individuals or €490 for a married couple or civil partners.
In addition, as a result of changes in the last five Budgets, USC rates have been reduced to 0.5%, 2% and 4.5%. The income level at which taxpayers begin to pay the higher rate of tax has also been increased by €2,500 and there have been increases in both the Home Carer Tax Credit and the Earned Income Credit. The impact of these changes is that the top marginal rate on incomes up to €70,000 has been reduced from 52% to 48.5%, with fewer people on incomes around the national average having any income subject to the 40% rate of income tax.