Although we were promised no rises in Income Tax in Budget 2013 – the government have still increased the PRSI deductions that earners (employed and self employed) will see taken out their salary.
This will affect lower earners more because they will will see a bigger percentage increase on overall deductions from pay than higher earners.
There is more fuss and protest over the new Property Tax – which will see every home owner paying at least €90 a year – but the PRSI changes will mean that every worker earning over €352 a week will end up paying €264 a year more in PRSI . It will be taken from wages at €5 a week – so will not be as noticeable.
People earning under €352 a week don’t pay any PRSI . PRSI was previously not charged on the first €127 a week – but from January 2013 this PRSI free allowance is being removed . All PAYE workers earning over €18k a year will see €264 a year more taken from their pay.
Example – someone earning €25000 – the PRSI will rise from €736 to €1000 a year – or about €22 a month or €5 a week .
The Employee’s PRSI-Free Allowance of €26 per week (for those paying PRSI Class B, C and D) will also be abolished from January 2013
Self Employed – The minimum annual PRSI contribution for people with annual self-employed income over €5,000 will increase by €247 from €253 per annum to €500 per annum.
PRSI changes will end up with many workers being at least €247 down a year – this is more than double the infamous Household Charge – but it will not create such publicity because it will be taken monthly in small amounts.
Currently, employees who pay PRSI at Classes B, C and D (a minority of the civil and public sector) are exempt from PRSI in respect of self-employed earned income (from a profession or trade) and any other unearned income e.g. rental income. This exemption will be abolished. All such income will become liable to PRSI at the rate of 4%.
In 2014 unearned income for employees will become subject to PRSI . This means that PRSI will be payable on income generated from wealth, such as rental income, investment income, dividends, interest on deposits and savings.
When added to DIRT -of 33% – this means the deductions on interest eared in deposits will be 37% from 2014 (assuming DIRT stays at 33% in 2014).
It is likely PRSI will be deducted at source where possible – with a refund or opt out scheme for those who shouldn’t be paying it . This could get complicated – but the alternative of everyone filling in tax returns would be worse.
See latest information on PRSI and Savings