The Universal Social Charge [USC] came in after the financial crisis. It was to be a temporary tax and used to bolster the government finances. This was at a time of frequent visits by members of the IMF. But what was temporary has now become permanent. The USC is a tax, plain and simple. There are no benefits to paying it other than doing your bit for the country. While PRSI is also a tax, you get this back as it funds your state pension and even dental checkups.
The purpose of this blog is to give you an idea of
- Introductions
- Billy’s USC liability
- Mary’s USC liability
- Meeting Billy
- Natasha Redundancy
- Summary
Introductions
Billy Gillane is a successful solicitor and had a great 2023. His practice was busy with property sales and Estate work. His profit that year was €150,000. He is 67 years old. He’s great craic and always has plenty of stories about nights out and all the women who are after him. It’s hard to tell fact from fiction with Billy at times. His other income last year was
| State Pension | €14,500 |
| Deposit Interest | €500 |
| Dividend Income | €2,500 |
| Rental Profit | €10,000 |
| UK Pension [from former employment] | €4,000 |
He has capital allowances from his solicitor’s practice of €5,000 and €1,500 against his rental income.
Billy’s wife Mary retired a few years ago and has a good income too. She’s a lovely lady and has some patience to put up with Billy. Her dad left her 100 acres and she lets that to a local farmer, Mick Power, for €25,000 under a 6-year lease. She pays €1,000 insurance on the land every year. Her other income for 2023 was
| State Pension | €14,500 |
| UK dividends | €5,000 |
| UK State Pension | €3,000 |
| Rental Profit | €6,000 |
She had rental losses forward from 2022, after doing a lot of repair work, of €5,000.
Billy’s USC Liability
Billy’s USC liability for 2023 is on the following income.
| Trading Profit | €150,000 |
| Less Capital Allowances | (€5,000) |
| Dividend Income | €2,500 |
| Rental profit | €10,000 |
| UK pension | €4,000 |
| Total | €161,500 |
Department of Social Protection payments like the State Pension are not liable to USC. Neither is deposit interest subject to DIRT. His rental profit is liable to USC and there is no deduction for Capital allowances. He can only get a deduction for Capital allowances against his trading income.
USC Rates
The standard USC rates for 2023 were
| First €12,012 | 0.5% |
| Next €10,908 | 2% |
| Next €47,124 | 4.5% |
| Balance | 8% |
There is a 3% USC surcharge if your non-PAYE income is more than €100,000 a year.
If your total income exceeds €13,000 in a tax year you pay USC on your full income.
The standard USC rates for 2024 are
| First €12,012 | 0.5% |
| Next €13,748 | 2% |
| Next €44,284 | 4% |
| Balance | 8% |
Billy’s USC calculation for 2023
Billy’s USC calculation for 2023 is as follows
| €12,012 x 0.5% | €60 |
| €10,908 x 2% | €218 |
| €47,124 x 4.5% | €2,121 |
| €91,456 x 8% | €7,316 |
| €57,500 x 3% | €1,725 |
| Total | €11,440 |
Billy pays the 3% surcharge on his non-PAYE income over €100,000. The UK pension is a PAYE type income, so his excess over €100,000 is €57,500.
Mary’s USC Liability
Mary’s USC liability for 2023 is on the following income
| Rental Profit on land | €24,000 |
| UK Dividends | €5,000 |
| Other Rental Profit | €6,000 |
| Total | €35,000 |
Like Billy, her Irish state pension isn’t liable to USC. Mary benefits from an Income Tax exemption of €18,000 when leasing farmland for 6 years. But that income is liable to USC. Losses forward, to be set against rental income, don’t benefit from a USC deduction. Again, this is in contrast with a trade where losses forward would be a deduction for USC. Mary’s pension from the UK is a state pension and would be like the Irish State pension. As a result, that income is not liable to USC.
Mary’s USC calculation for 2023
| €12,012 x 0.5% | €60 |
| €10,908 x 2% | €218 |
| €12,080 x 4.5% | €544 |
| Total | €822 |
Meeting Billy
It’s now April of 2024. The warm circular thing in the sky has yet to appear this year. I think they call it the sun! I met Billy in the local coffee shop. He has some exciting news and that he’ll call into us in early May. His news has piqued my interest, and given it’s Billy, it will be different. And so, it comes to pass. He has fallen in love with his secretary Natasha and she’s crazy about him. They developed a “deep connection” according to Billy. Per Billy, Mary is cool about the situation but wants him to move out.
Billy wants to do right by Mary, and they have discussed a separation agreement. They agreed on a monthly maintenance payment of €2,000 and will put that into a legal agreement. He’s curious about how this works for his taxes.
Maintenance Payments & USC
For USC purposes Billy will be exempt from USC on legally enforceable maintenance payments. At the same time, Mary will pay USC on her maintenance payment. The plan is to start paying this from the 1st of January 2025. Let’s assume Billy has the same income in 2025 as in 2023.
| Total income liable to USC | €161,500 |
| Less deduction for maintenance | (€24,000) |
| Net income liable to USC | €137,500) |
| USC deduction €24,000 x 11% | €2,640 |
Billy gets a deduction at his highest rate of USC which is 11%.
Reduced Rate of USC
Mary will pay the reduced rate of USC in 2025 because she is 70 next year. Reduced rates of USC will apply for the whole year when you
- reach the age of 70 and your income is €60,000 or less or
- Hold a full medical card at any time during the year
Let’s assume that Mary’s income in 2025 will be the same as in 2023.
| Total income liable to USC | €35,000 |
| Add maintenance payments | €24,000 |
| Revised income liable to USC | €59,000 |
Her USC liability for 2025 will be
| First €12,012 x 0.5% | €60 |
| Balance €46,988 x 2% | €940 |
| Total | €1,000 |
If Mary’s income was over €60,000 in 2025, she would pay normal USC rates and can’t avail of the reduced rate.
Natasha Redundancy
Billy plans to pay Natasha redundancy. Natasha thinks that working for Billy wouldn’t be good for their relationship. Sure, they’d see each other all the time at home and at work. She wants more time to discover herself and plans to do some courses in basket weaving and reiki. She has worked for the business for the last 10 years and Billy would like to pay her €35,000. This will consist of
- Statutory redundancy of €12,000 and
- Ex-gratia payment of €23,000
The statutory redundancy payment is exempt from USC. The ex-gratia payment of €23,000 is also exempt from USC as it isn’t taxable due to the increased exemption. The increased exemption for Natasha is €27,810. If Billy paid Natasha €45,000 redundancy the first €39,810 would be exempt from USC. The amount above that would be liable at normal USC rates.
Summary
USC can be a more complex tax. It’s important to know that everyone’s USC liability depends on their own income. A married couple where one spouse has an income of €120,000 will pay a lot more USC than a married couple where both spouses earn €60,000 each. Reduced rates apply if you are over 70 and have an income of €60,000 or less. Or if you have a full medical card at any stage during a tax year.
Owner directors of companies are not liable for the extra 3% charge on their employment income. That is PAYE income, and the surcharge applies to non-PAYE income greater than €100,000. So high-earning self-employed individuals will pay that extra 3%.
It’s important that you don’t overpay USC and to ensure you don’t do that your tax return needs to be right. Everything is in the correct income category and claim any deductions you can avail of.
Do you need help to make sure your Tax return is right? If so, start here
