Section 188 of the Taxes Consolidation Act 1997 provides for an exemption from income tax for a couple who are jointly assessed to tax and either of them is 65 years of age or over during the tax year where their combined incomes do not exceed €36,000. However, where their combined incomes exceed €36,000, a measure of relief from full taxation (called ‘marginal relief') is still available. Under marginal relief the couple's income tax liability is computed on the basis of the lesser of—
- 40% of the difference between €36,000 and the couple's combined income, and
- the couple's tax liability using normal tax computation rules.
The following is an example extrapolated from the limited details provided by the Deputy:
Normal tax computation rules:
Employment pension €18,721
DSP pension €22,700 (including increase for qualified adult over 66)
Combined incomes €41,421
Tax @ 20% €8,283
Less
Personal Tax Credit (€3,300)
PAYE Tax credit (€1,650) (employment pension paid under PAYE)
Age credit (€490)
Tax liability €2,843
Marginal relief method:
40% of (€41,421 — €36,000) = €2,168
Income tax due €2,168
Income is also subject to the Universal Social Charge (USC). USC is not payable where an individual's income does not exceed €10,036 (€4,004 for 2011) for a tax year. However, where this amount is exceeded, USC is payable on the full amount. The first €10,036 of income is charged at 2%, the next €5,980 at 4% and the remainder at 7%.
These standard rates are modified in certain circumstances. Thus, where an individual holds a full medical card or is aged over 70 years at any stage in a tax year the rate of USC is capped at 4%. In addition, social welfare payments, including social welfare pensions, are exempt from USC.
In the case of married couples or civil partners, the USC thresholds apply to each spouse or civil partner individually and cannot be combined where one spouse or civil partner is below the threshold and the other above.
Taking the example given earlier, the employment pension of €18,721 is liable to USC. Assuming the person in receipt of that pension is over seventy years of age or holds a medical card, the USC liability arising on it is €548 (€10,036 @ 2% and €8,685 @ 4%). Combining the income tax liability (€2,168) and the USC liability (€548) gives a total tax and USC liability of €2,716.
I am informed by the Revenue Commissioners that in the absence of complete details of the nature of the income of the couple and their entitlement to various tax reliefs (e.g. medical expenses) it is not possible to fully reconcile their tax and USC liability with the details supplied. However, it would seem, taking into account entitlement to marginal relief and their USC liability as demonstrated in the example above, that the couple's tax and USC liability as set out in the question would appear to be broadly correct. If the individuals concerned contact their Revenue office with all relevant details their liability to income tax and USC can be examined and explained to them in detail.
