We will look at 5 Tax benefits for 2022 and 2023 for employees and business owners. Some come into effect now and others will kick in in 2023. Our main focus will be on
- Increase in the lower rate band
- Increase in tax credits
- Rent Tax Credit
- USC – increase in 2% band
- Small Benefit Exemption
Some examples should help understand the savings. And some tips to maximise the benefits too.
Tax Benefit – Increase in the lower rate band
The current lower rate is 20% and the higher rate is 40%. With the increase in the lower rate band, it means we can earn more money at the lower rate. The increase was €3200 for all earners which is a saving of €640.
- Single or widowed go from €36800 to €40000
- Single or widowed qualifying for the single person child carer credit goes from €40800 to €44000
- Married couples or civil partners with one income go from €45800 to €49000
- Married couples or civil partners with two incomes go from €45800 to €49000 (with a max increase of up to €31000)
Let’s look at a few examples. Mary Carroll is single and working as a teacher. She earns €50000 per annum. She rents an apartment at €1000 per month.
| 2023 | 2022 | ||
| €40000 at 20% | €8000 | €36800 at 20% | €7360 |
| €10000 at 40% | €4000 | €13200 at 40% | €5280 |
| Total | €12000 | Total | €12640 |
| Tax saving | €640 |
Silvio and Georgia Moloney are a married couple. Both are working. Silvio is a company director. His annual salary is €60000, and Georgia works part-time on a salary of €32000.
| 2023 | 2022 | ||
| €49000 at 20% | €9800 | €45800 at 20% | €9160 |
| €11000 at 40% | €4400 | €14200 at 40% | €5680 |
| €31000 at 20% | €6200 | €27800 at 20% | €5560 |
| €1000 at 40% | €400 | €4200 at 40% | €1680 |
| Total | €20800 | Total | €22080 |
| Tax saving | €1280 |
As you will see from the above both benefitted from the extra €3200 at the lower rate. Note the above are not their tax liabilities as we must deduct their tax credits to arrive at that number.
Tax Benefit – Increase in Tax Credits
- An increase in the personal tax credit from €1700 to €1775
- The employee tax credits [PAYE] goes from €1700 to €1775
- An increase in the Earned Income Credit from €1700 to €1775
- The Home Carer Tax credit goes from €1600 to €1700
Mary will get the extra personal tax credit and get the increased PAYE credit in 2023. If we follow on from the above examples
| 2023 | 2022 | ||
| Total | €12000 | Total | €12640 |
| Personal Credit | €1775 | Personal Credit | €1700 |
| PAYE Credit | €1775 | PAYE Credit | €1700 |
| Net Tax liability | €8450 | Net Tax Liability | €9240 |
| Tax saving | €790 |
For Silvio and Georgia, the tax credit savings are as follows
| 2023 | 2022 | ||
| Total | €20800 | Total | €22080 |
| Married Credit | €3550 | Married Credit | €3400 |
| Earned Income | €1775 | Earned Income | €1700 |
| PAYE Credit | €1775 | PAYE Credit | €1700 |
| Net Tax liability | €13700 | Net Tax liability | €15280 |
| Tax saving | €1580 |
Tax Benefit – Rent Tax Credit
There is a new rent tax credit for private tenants who are not in receipt of other State housing supports. Per the published budget documents, the credit will be claimable “in year” in 2023. The credit is also due for 2022 in 2023 but we don’t know how people will access that yet.
As we know Mary rents an apartment for €1000 per month so she will get the rent credit in 2023 for 2023 and 2022. This will be worth €500 for each year and €1000 in total.
| 2023 | 2022 | ||
| Total | €12000 | Total | €12640 |
| Personal Credit | €1775 | Personal Credit | €1700 |
| PAYE Credit | €1775 | PAYE Credit | €1700 |
| Rent Tax Credit | €1000 | Rent Tax Credit | €0 |
| Net tax liability | €7450 | Net tax liability | €9240 |
| Tax saving | €1790 |
For 2024 Mary will get the normal rent tax credit of €500. The Moloney’s are not renting their home and will not get the rent tax credit. If they were renting, my understanding is that the rent tax credit would be €500 per person. If this were the case the rent tax credit would be €2000 in 2023 for 2022 and 2023 and will be €1000 in 2024 and onwards. Exact details will follow in the Finance Bill.
Tax Benefit – Lower USC
The ceiling for the 2% rate of USC will increase by €1625 from €21295 to €22920. The reason was to ensure those on the minimum wage don’t go into the higher rates of USC. The minimum wage is due to increase from €10.50 to €11.30 from 1 January 2023. The saving is small at about €41 per person.
We will see how this works out for Mary on her salary of €50000
| 2023 | 2022 | ||
| €12012 at 0.5% | €60 | €12012 at 0.5% | €60 |
| €10908 at 2% | €218 | €9283 at 2% | €186 |
| €27080 at 4.5% | €1219 | €28705 at 4.5% | €1292 |
| Total | €1497 | Total | €1538 |
| Tax saving | €41 |
The Moloney’s would save €82 or €41 each bringing their total tax savings to €1662. As I said not a huge saving. Still, it’s better than a slap in the face with a wet fish!
Small Benefit Exemption
The small benefit exemption will increase to a maximum annual total of €1000. This is an increase of €500. The number of benefits will also increase from 1 to 2. Before the budget it was
- 1 benefit up to a max of €500 in a year and the change is
- Up to 2 benefits to a max of €1000 in a year
It is available to both employees and directors. The key here is that there are no payroll taxes to deduct. That’s no PAYE, PRSI, or USC for the employee. And there is no employer’s PRSI for the employer. The benefit cannot be in cash and is usually by way of a voucher.
In the Moloney’s case, Silvio can give himself a voucher for €1000 in December 2022. Remember this change came into effect on the 28th of September. If Georgia was a director of the company, she could also get a voucher for €1000. Kildare Village won’t know what hit them!
Tips
- Company Directors can look at your salaries. Is there scope to earn more at the lower rate? Say you are currently earning €45000. Can you increase your salary to €49000 and earn the extra €4000 at the lower rate? If your spouse is working in the company too, can you increase his/her salary to maximise lower rate bands?
- Keep an eye out for your tax credit cert for 2023. This will arrive in December and make sure your rate bands and tax credits are right. If you don’t understand it get help
- Stay friendly with your landlord. You may need to get his/her details so you can claim the rental tax credit.
- Understand how you will get the rent tax credit for 2022. Will that form part of your tax credit cert for 2023 or can you claim a refund in early 2023? If you can claim a refund through a tax return, check if you have other things to claim like medical expenses, etc.
- Company owners can increase the voucher value for themselves and staff this year. The director doesn’t have to be on the payroll of the company giving the voucher.
- Are you a married couple or civil partners, with one income, and a spouse/civil partner at home with dependents? Make sure to claim the Home Carer Tax Credit. This is worth €1700 in 2023.
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