Where a person is in receipt of payments 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 to take account of the amount of their taxable DSP payments. 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.
In addition, it is important to point out that if a person is aged 65 or over, they may avail of 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 as between the use of marginal relief or the normal tax system of credits and bands.
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.
For clarity, Budget 2022 included an increase of €5 per week in the State Pension and €3 per week increase in the Living Alone Allowance. In general, an increase of €8 per week in DSP income would mean an increase of approximately €1.60 per week in tax deducted from a weekly occupational pension (the same weekly increase of €8 would be €32 per month and would result in an additional €6.40 per month being deducted from the occupational pension).
However, Budget 2022 included a significant tax package amounting to a cost of €520 million. This included a substantial income tax package comprising of an increase of €50 in each of the main tax credits – personal tax credit, employee tax credit and the earned income credit – from €1,650 to €1,700. An increase of €1,500 in the income tax standard rate band for all income earners was also introduced. Further details can be located at the following link - www.gov.ie/en/publication/7e491-taxation-measures/.
Having regard to the fiscal demands and pressures facing the State in 2022, it would not have been possible to increase all tax credits and reliefs and remain within the fiscal parameters. However, it is worth pointing out that the age exemption limits are at a level which compares favourably with the tax treatment of the generality of taxpayers.
I am advised by Revenue that they have communicated directly with the Deputy in relation to the taxpayer in question on this matter.
I am further advised by Revenue that on review of the records of the person concerned, they are paying less tax on their private pension in the current year than in 2021. This is due to the combination of the increased DSP payments announced in Budget 2022 and the increased personal and PAYE tax credits for 2022, which reduce the amount of tax the person is due to pay on their income. The tax deducted from their private pension in 2022 is currently €6.62 per month as opposed to €8.02 per month, as was the case in the latter half of 2021. Taking the increase in the DSP pension and the reduction of tax from the private pension into consideration, the taxpayer’s net monthly income has increased in 2022.
Additional guidance on a range of other tax credits and reliefs, such as the age tax credit, that 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.
