Dáil Éireann Debate, Wednesday - 19 January 2022
311. Deputy Róisín Shortall asked the Minister for Finance if he is giving consideration to the situation arising for some pensioners who due to the broadly welcomed €5 increase in the State pension are now paying more tax on their workplace pension leaving them financially worse off; and if he will make a statement on the matter. [63600/21]
View answer344. Deputy Claire Kerrane asked the Minister for Finance when the annual exemption limits for persons aged 65 years and over for the payment of tax on pensions was last reviewed and increased; and if he will make a statement on the matter. [1883/22]
View answer345. Deputy Claire Kerrane asked the Minister for Finance if he will review current taxation policy for the payment of tax for older couples in receipt of the State pension in cases in which they have a modest occupational pension from work given they contributed to that pension throughout their working life and payment of such tax now erodes their tax credits and lessens their weekly income; and if he will make a statement on the matter. [1884/22]
View answerI propose to take Questions Nos. 311, 344 and 345 together.
Where a person is in receipt of the State pension from the Department of Social Protection (DSP) and has an additional source of income such as an occupational pension, the mechanism used to tax payments from the DSP, is by reducing the person’s annual tax credits and rate band by the annual amount of their DSP income. This ensures that their weekly payment from the DSP is paid gross to the recipient, while their weekly/monthly occupational pension paid by their pension provider will have any tax due on the DSP income and on the occupational pension deducted from it.
I am aware that, depending on a person’s circumstances, increases in weekly DSP payments may result in higher tax deductions from a person’s occupational pension and a reduced weekly/monthly net occupational pension. However, over the course of a year as a result of the increased payment, a person’s combined net income from their occupational and State pensions after the increase will always be higher than it was before the increase.
If the Deputy wishes to provide details of any specific individual concerned, I will ask Revenue to review the case to ensure that the person is not suffering excessive tax deductions.
In relation to the annual age exemption limits, section 188 of the Taxes Consolidation Act 1997 (TCA 1997) provides for these exemptions and associated marginal relief. Where the age exemption applies the claimant’s income will be exempt from income tax in that year.
The age exemption applies for any year of assessment where an individual is aged 65 years or over and his or her total income does not exceed €18,000. Where an individual is a married person or civil partner and is jointly assessed to tax, the age exemption will apply where either individual is aged 65 or over and where the couple’s total income does not exceed €36,000. The relevant income thresholds may be increased further if the individual has a qualifying child. The thresholds are increased by €575 in respect of both the first and second child, and €830 in respect of each subsequent child.
Marginal relief may be available where the individual’s or couple’s income exceeds the relevant exemption limit but is less than twice that amount. Where marginal relief applies the individual or couple is taxed at 40% on all income above the exemption limit to a ceiling of twice the exemption limit. Once the income exceeds twice the exemption limit marginal relief is no longer available and the individual pays tax under the normal tax system. It should be noted, however, that where the individual’s income is greater than the exemption limit but below twice that limit, the taxpayer is always given the benefit of the more favourable treatment between the use of marginal relief or the normal tax system of credits and bands.
Further guidance on the application of the age exemption and marginal relief can be found on Revenue’s website in Tax and Duty Manual Part 07-01-18, which may be accessed at the links below:
- Revenue website: www.revenue.ie/en/personal-tax-credits-reliefs-and-exemptions/marital-and-civil-status/exemption-and-marginal-relief/marginal-relief.aspx
- Tax and Duty Manual: www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-07/07-01-18.pdf.
The age exemption limits were last increased in Budget 2008. In common with other personal tax credits and reliefs, and in the context of the financial crisis, they were reduced to their current levels in Finance Act 2011.
Additional guidance on a range of other tax credits and reliefs which may be available for individuals over 65 years of age can be found in Tax and Duty Manual Part 15-01-26, which can be located at the following link – Tax and Duty Manual: www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-15/15-01-26.pdf.
In addition, it is also worth pointing out that the State Contributory Pension and the State Non-Contributory Pension are not chargeable to Universal Social Charge or Pay Related Social Insurance.
