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Tax tips for over 65’s – The sequel!

Let me start by saying what people always say in these situations "the sequel is never as good as the original" or "it's not a patch on the book". The book is in there somewhere and if it ever appears I will of course be onto you all to give it a 5 star rating on Amazon irrespective of what you think of it!

I got thinking again this morning about our older clients, during that glorious time when you think the alarm clock is about to go off and you realise you have an extra half hour in bed, and my thoughts were extremely positive in that these are some of the best clients we could ever possibly wish for and then I asked myself why is that? I came up with the following answers;

  • They are extremely loyal as most of them have been with us from the very start
  • In most cases their work is straightforward
  • They appreciate the quick turnaround time and service they get
  • They pay their fees immediately
  • They are content knowing their tax affairs are in order and that we are there for them in the event of any Revenue queries
So hopefully we can continue to offer you a personal and professional service going forward.

Just to close off this series of blogs I wanted to talk briefly about PRSI and the dreaded and supposedly temporary USC.

PRSI

The vast majority of us pay this and the cost is 4% of gross salary or self-employment profit. You will see this at the deductions section of your payslip or on your annual Notice of Assessment for the self-employed. Our government have put themselves in a good position to collect large amounts of it as it applies to your income between the ages of 16 and 66. However unlike most taxes this particular one has some benefits, some of which hopefully won't happen to you and others which we hope will mean you more than recover your contributions by living long enough. The main benefits are;

  • Survivor's pension
  • Maternity benefit
  • State pension contributory
  • Jobseekers benefit
Employees have more benefits than self-employed as both the employee and employer pay PRSI with the typical employer payment being 10.75% of gross salary. Self-employed do not benefit from jobseekers if their business folds, so this is an area which was a topic of discussion at government level seemingly. For self-employed the minimum contribution is €500 per annum provided they have a taxable profit of €5000 or more and employees do not pay any PRSI if their earnings are less than €352 per week but they will get what is called "credited contributions" which means that they are still regarded as having contributions for that pay period which will count towards benefits. An owner Director of his own company would typically be regarded as a self-employed person and only pay 4% also, although there can be some confusion in these cases depending on the shareholding and contract you have.

For the 2014 Tax year and onwards PRSI was also charged on unearned income such as deposit interest, rental profits and dividends for people who had to file Income Tax returns. Beware that paying PRSI on this income is only a tax and doesn't count towards any benefits, so for a taxpayer it's important that they are paying PRSI on either self-employment income or as an employee.

Once you reach your 66 th year you finally no longer have to pay while at the same time you start to receive the state pension of €233.30 per week. Happy days indeed! For those who are self-employed once you are 66 in the tax year you will not have to pay any PRSI for that year. Those born between 1 January 1955 and 31 December 1960 will have a state pension age of 67 and it will be 68 for those born from 1 January 1961. I have no doubt that just before I hit my 68th birthday I will peer up from my big red tax book to read "Minister changes pension age to 75" so I will be in the fortunate position of gaining another 7 years' experience prior to retirement

When offering advice on this topic I would recommend the following;

  • Write to the Department of Social protection when you are 60 and get a record of your PRSI contributions
  • Look at your legal structure, as a sole trader will only pay PRSI for himself/herself but in a partnership or limited company situation there could be scope for PRSI for both spouses/civil partners
  • If your profits are near the €5k mark it may be worth ensuring they are at €5k or above so that you can pay the minimum contribution for that year
  • If you are no-longer self-employed or out of the workforce be informed of voluntary contributions or other possible solutions so your record is not broken
  • Plan to maximise your PRSI contributions to ensure you qualify for benefits
  • Live long enough to enjoy the benefits of the state pension, so put the chocolate donut down now, grab the runners and hit the road!
USC

To give it its full title – Universal Social Charge. It was introduced in January 2011 by Brian Lenihan, when the country was on its knees. The rates have been falling for those on incomes below €70,044

USC is a tax payable on gross income, including notional pay, after any relief for certain capital allowances, but before pension contributions. It is collected by your employer and handed over to Revenue and for the self-employed it is paid as part of your annual tax bill.

The rates and thresholds for 2017 are as follows;

Income up to €12,012 0.5%
Income from €12,012 to €18,772 2.5%
Income from €18,772 to €70,044 5.0%
Income above €70,044 8.0%

The USC rates have all fallen by 0.5% up to €70,044 compared to the 2016 rates but the 8% rate has stayed the same. For self-employed the rate increases to 11% on income from a trade or profession in excess of €100,000.

The good news for those on welfare payments and state pensions is that USC doesn't apply to those payments. Deposit interest, subject to DIRT Tax, is not liable to USC.Also where an individual's total income is less than €13,000 that individual will not be liable to USC.

Individuals under age 70, whose aggregate income is less than €60,000, and who hold a full-medical card will pay USC at 0.5% up to €12,012 and 2.5% on all income above that. These same rates and income limits apply for individuals over 70, again with an income of less that €60,000.

We recently saw a good example of the lower rates of USC working in practice for a couple in their 70's who are running a business in partnership. In this scenario the total income was approx. €80k being 30k each from the business and €10k each from a state pension. For 2017 the USC bill on this would only be on the €30k. The first €12,012 is at 0.5% and the balance of €17,988 is at 2.5% which is a total of €510 or €1,020 for the couple on the combined €80k. If you compare this to an individual under 70 with a business profit of €40,000 they would have a USC bill of €1,290 or €2,580 for a couple under 70 with a profit of €40,000 each. It just shows the significant reduction in USC where there are state pensions and incomes are lower than €60k per individual. The contrast is even more pronounced if you compare the couple's income and assume an individual had a profit of €80k from a business. The USC cost for that individual comes to €3,589. Although not exactly comparing like with like, the gross income into the household is the same amount but there is an extra €2,569 in USC cost on the one individual.This individual will also pay €3,200 PRSI while the couple over 70 don't pay any. This does seem quite inequitable as it is likely that the individual would have more bills in terms of mortgage, car loans and possibly have dependent children.

It probably emphasises the need to ensure that you qualify for state pensions and the need for planning to see if there are possible solutions to look at maximising lower USC rates for married couples. Therefore you should consider the following;

  • For pension planning does your spouse have a source of pensionable earnings
  • If your own pension is well funded could pension contributions be made by your spouse
  • Look at your business structure – would a partnership or limited company be of value or if not earning enough changing from a partnership to a sole trader
  • Beware of the qualifying conditions for a full medical card when you are over 70 and under 70
As always please be informed and talk to your accountant…..when you have finished that 5k run!





 

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