Budget 2023 tax measures are intended to benefit most taxpayers and will be welcomed by middle-income earners in particular, write Robert Dowley and Eoghan Quigley, partners at KPMG
In the minister’s words, the 2023 budget was a cost of living budget, and while most of the measures to help citizens were implemented through the welfare system, the finance minister Pascal Donohoe chose the tax system and USC to be part of the transmission of cost of living subsidies.
The minister made specific reference to the recently released report of the Tax and Welfare Commission, as well as to papers released this month by the Tax Strategy Group.
He confirmed that he had asked his department to review a series of recommendations regarding PRSI, USC, and income tax, with a view to developing a medium-term roadmap for tax reform. personal taxation. In addition, the Minister confirmed that the impact of the introduction of a third intermediate income tax rate will be taken into account.
The minister stressed that engagement will be needed with revenue commissioners before a political decision is made and the change could be implemented by January 2024.
The specific measures announced in the Minister’s speech are detailed below.
Universal Social Charge
For the fifth consecutive budget speech, no adjustments were made to USC rates. Also, no explicit mention was made of the 3% USC levy that applies to certain non-employment income.
USC’s second bracket has been adjusted to ensure that a full-time worker earning the new minimum wage of €11.30 per hour will stay out of USC’s higher rates. This objective will be achieved by increasing the ceiling to which the 2% rate applies from €21,295 to €22,920.
Extending the band will also result in a slight decrease in USC for people whose income exceeds these levels. Both the minimum wage increase and the USC strip will apply beginning January 1, 2023.
USC’s reduced rate for medical cardholders who earn less than €60,000 per year was due to expire at the end of 2022 but has again been extended by one year to the end of 2023. There is also no change of USC for those earning less than €60,000 per year who are over 70 years old.
The threshold for applying the increased rate of income tax has increased from €3,200 to €40,000. This equates to a range increase of 8.7%, which is in line with the growth in the consumer price index over the year to August 31, 2022.
This increase should allow an annual saving of €640 for a single person earning more than €40,000 per year and up to €1,280 for married couples/civil partners.
The Tax Strategy Group has explored the introduction of a third income tax rate between the current rates of 20% and 40%. The introduction of an intermediate rate should be carefully considered in terms of practical impact (eg updates to payroll software and the tax authorities’ own systems). Implications for existing tax breaks such as pension contributions should also be considered.
Nevertheless, the Minister seems determined to consider its implementation for the 2024 tax year.
The personal tax credit, the tax credit for employees and the tax credit on earned income will each increase by €75, from €1,700 to €1,775. This represents an increase of 4.4% but there was no mention of an index linking these credits to inflation or possible wage increases.
The Minister has also provided for an increase of €100 in the home help tax credit, from €1,600 to €1,700, and the extension of the naval seagoing personnel tax credit until 2023.
Exemption from small advantages
Tax rules have for several years allowed employers to offer an employee a non-monetary incentive of up to €500 per year without giving rise to a tax charge when certain conditions are met. This is commonly referred to as the “minor benefit waiver”.
In a welcome move, the Minister announced an extension of the current relief.
Firstly, an employer will be allowed to provide up to two qualifying awards per year, and secondly, the maximum tax exempt amount per year has been increased to €1,000. This will provide employers with additional leeway to reward employees in a tax-efficient manner.
The incentive is often offered in the form of a Christmas voucher. By virtue of a financial resolution, this amendment will take effect on September 28, 2022, so the enhanced benefits are accessible in the current tax year.
Key employee engagement program
The Key Employee Engagement Program (KEEP) is a tax relief for stock option plans that began in 2018 specifically for employees and directors of certain eligible SMEs.
The Minister announced in his budget speech that KEEP is being extended until December 31, 2025 and that a number of positive changes will be made to the plan.
The relief is amended to allow the company to buy back KEEP shares from the affected employee to receive the relief. In addition, the company’s lifetime ceiling for KEEP shares has been increased from €3 million to €6 million.
Certain key provisions of the 2019 finance law regarding group structures and eligible persons are in the process of being applied. These provisions allow businesses that operate through typical group structures to qualify for KEEP and change the definition of “eligible person” to also include certain part-time and flex employees.
Special Assignee Assistance Program
The Special Assignee Assistance Program (SARP) was introduced on 1 January 2012 and is a key part of Ireland’s competitive foreign direct investment offering to attract internationally mobile talent.
The SARP reduces the tax burden for eligible expatriate executives for up to five consecutive tax years from their first arrival in Ireland.
The Minister announced the extension of the SARP for those eligible arriving until the end of 2025, and that from 2023 the minimum base salary for an employee to qualify for the relief will increase from 75,000 € to €100,000.
Deduction for foreign income
In another positive development, the Minister announced an extension of the existing relief from the Foreign Income Deduction until 2025. This relief provides income tax relief to Irish employees who spend time working in certain eligible counties.
The extension should hopefully continue to spur Irish businesses to grow and expand into new emerging markets.
The budget also included an announcement that Revenue will undertake targeted compliance interventions with respect to the operation of PAYE by businesses. The focus of these interventions should be the operation of PAYE on stock plans, which is a continuation of the tax administration’s ongoing review of tax compliance with respect to stock option plans. on shares.