Universal Social Charge

Budget 2012 Update:

The 2012 Budget has made changes to the USC such that those on incomes of €10,036 or less will not suffer the charge going forward. If the income of the individual exceeds the €10,036 then, as heretofore, the full income is likely to be within the charge to the USC. More updates to follow following a review of Budget documents.

Original Post Content

Below you will see a table which sets out the thresholds and rates of the new Universal Social Charge (USC) which was announced in Budget 2011 and which came into force on the 1st January 2011. A number of people have spoken to me of late about this asking how the charge will work in situations where, for example, an individual works for less than 52 weeks, (E.G. 20 weeks) but yet exceeds a particular threshold, e.g. cumulatively over the course of the 20 weeks their pay has exceeded say the ANNUAL threshold for the 2% rate of €10,036 by week 20 but annually is less than the highest rate of USC that their weekly pay had been exposed to, in this example it is 7%. In other words, the individual may have earned (say) €14,000 by week 20 (weekly gross salary of €700) meaning they would have been paying a 7% USC rate on a weekly basis.

The USC is applied in accordance with standard PAYE payroll procedures. What this means is that it will be applied on a week 1 or normal (i.e. cumulative) basis whichever is applicable. The emergency basis of Income Tax will probably not alter the amount of the USC that is deducted from a weekly or monthly pay. The primary difference between the week 1 and normal (cumulative) basis for application of the USC is that, where weekly/monthly wage levels differ from one month to the next, with the Week/month 1 basis each pay period is separate from the next and prior periods and therefore the weekly/monthly USC will remain constant. If, however, wage levels drop, such a drop (if the cumulative basis is applied) will result in the cumulative wage total being less than the comparable cumulative threshold and therefore result in a lower USC charge for the given pay period. In other words, the reduction in the USC when compared to the previous pay period (which is only possible under the cumulative payroll basis) is a form of drip feed refund of overpaid USC.

In a scenario such as that outlined in paragraph 1 above the individual will be entitled to apply the 52 week calculation basis to their earnings and, assuming that they had no other source of taxable income during 2011, the individual would be entitled to a refund of USC equating to €359. The individual concerned will in fact have to apply to the Revenue Commissioners/Department of Social Welfare after the year end in most cases for this refund. It is unclear as of yet which will provide the refund given the fact that the USC is the result of a merger of the Income Levies (introduced in the Emergency Budget of October 2008), which were the responsibility of the Revenue Commissioners, and the Health Levy (previously collected as part of the PRSI deduction on payslips) which was the responsibility of the Department of Social, Community & Family Affairs.

Income Thresholds

Per Year	Per Week	Per Month	Rate of Universal Social Charge
First €10,036	First €193	First €837	2%
Next €5,980	Next €115	Next €498	4%
Balance of annual income	Balance of weekly income	Balance of monthly income	7%

Update as of 26th January 2011

It was announced on the evening of the 25th January 2011 that medical card holders would only pay a top rate of 4% Universal Social Charge with the shortfall being made up with a top rate of 10% for those earning €100,000 or more. The precise measures will be announced in the updated Finance Bill 2011.

McCutcheon Taxation Services can be contacted as follows:

Telephone	00353-(0)87-666-3893
Email	m_mccutcheonATeircom.net
Mail	Mountrice, Kilmore, Co. Clare, Ireland
Twitter	twitter.com/m_mccutcheon
Skype	mark_mccutcheon

Note

The author suggests you seek independent taxation advice prior to any business transation, asset sale/transfer (as a gift or will bequest) as the individual facts and circumstances can affect the tax outcome.