Finance Act 2011 introduced the universal social charge in lieu of the income levy and health levy. The USC is, broadly speaking, a flat rate tax payable on almost all income.
The universal social charge was introduced as a means of raising revenue quickly. It replaced the pre-existing income levy, introduced earlier in the financial crisis.
Income levies had been introduced in the past as a short-lived semi-emergency measure. The universal social charge is likely to endure.
USC is charged on almost all income with few allowances, credits, or exemptions. The attraction of the charge to the government is that it brought into the tax net persons on low incomes who are exempt from or pay little income tax. It also taxed persons who paid reduced income tax because of investment allowances.
The Universal Social Charge (USC) is a tax payable on gross income, including notional pay, after any relief for certain trading losses and capital allowances, but before pension contributions. The USC rates apply to each spouse or civil partner’s incomes individually. There is no aggregation.
USC is charged on relevant emoluments and relevant income. Relevant emoluments and relevant income are the categories used in the context of PRSI for employed and self-employed persons.
Relevant emoluments are emoluments to which Chapter 4 of Part 42 TCA 1997 (i.e. the Income Tax PAYE system) applies and include:
- any allowable contributions referred to in Regulation 31 of the Income Tax (Employments) Regulations 2018 (pension contributions),
- the initial market value of shares appropriated to an individual under an approved profit-sharing scheme, except where such shares were held by an employee share ownership trust (ESOT) before 1 January
2011 (these shares are not charged to income tax on appropriation),
- the market value of the right to acquire shares in accordance with the provisions of a savings-related share option scheme (the receipt of this right to acquire shares is not chargeable to income tax),
- any gain exempted from income tax on the exercise of the right to acquire shares in a savings-related share option scheme or an approved share option scheme, after such a gain is reduced by the market value of the right referred to in the previous sub-paragraph, and
- the ‘specified amount’ which can be deducted from the profits or gains to be assessed on an employee who makes a claim under the Special Assignee Relief Programme (SARP).
Relevant emoluments do not include payments made under the Social Welfare Acts and payments which are of a similar character to social welfare payments which are made by
- the Department of Education and Skills,
- the Department of Agriculture, Food and the Marine,
- the Health Service Executive,
- an Education and Training Board (ETB) in relation to attendance at a non-craft training course funded by SOLAS,
- a sponsor in relation to participation in Jobs Initiative and Community Employment Schemes, or
- any other State or territory,
Relevant emoluments do not include
- emoluments gifted to the Minister for Finance (under S483 TCA 1997),
- emoluments disregarded by an employer following receipt of a notification issued by an inspector under section 984(1) TCA 1997 (a PAYE exclusion order),
- the basic exemption in respect of termination lump sum payments, standard capital superannuation benefit (SCSB), and the exemption of up to €10,000
- an amount paid in respect of pre-retirement access to AVCs (S782A TCA 1997), and(f) a PRSA contribution by an employer to a PRSA in respect of an employee.
‘Relevant income’ is income from all sources as estimated in accordance with the Tax Acts, other than the items of income listed at (i), (ii) and (iii) below, and without regard to any amount deductible in computing total income other than the deductions listed at (iv) to (viii) below.
Items of income not taken into account:
(i) relevant emoluments (as above),
(ii) any emoluments, payments, expenses or other amounts referred to in paragraphs above on relevant emoluments
(iii) any gains, income or payments in connection with the following:
– deposit interest (Chapter 4, Part 8 TCA 1997)
– dividend payments from a credit union (Chapter 5, Part 8 TCA 1997)
– foreign deposit interest (Chapter 7, Part 8 TCA 1997)
– life policies (Chapter 5, Part 26 TCA 1997)
– foreign life policies (Chapter 6, Part 26 TCA 1997)
– investment undertakings (Chapter 1A, Part 27 TCA 1997), and
– certain offshore funds (Chapter 4, Part 27 TCA 1997).
(iv) in the case of an individual resident in the State but working outside the State who qualifies for ‘Cross-Border Relief’ (S825A TCA 1997), a deduction equal to the amount that would have been deducted from
total income in the absence of relief under Section 825A so as to arrive at the same tax liability as the liability due as a result of granting section 825A relief.
(v) maintenance payments by a separated spouse or civil partner, or by a cohabitant on the ending of his or her relationship (as provided for in sections 1025, 1031J and 1031Q TCA 1997, respectively), other than in
the case where the two individuals concerned may opt for and have opted for joint assessment.
(vi) losses carried forward in respect of a trade or profession and utilised in the year.
(vii) industrial buildings writing-down allowances, wear and tear allowances, farm buildings allowances, or farm pollution control allowances in respect a trade or profession for the year or carried forward and utilised in the year other than where the allowance is made to an individual who is not an active partner in a partnership trade (within the meaning of section 904A TCA 1997) or is the subject to a claim under section 381 TCA 1997.
(viii) A deduction equal to the amount that a lessor of a property which qualified for tax incentives is deemed to have received as rent (on the sale of the property or on it ceasing to be a qualifying premises), but
only where the individual received, or was entitled to receive relief in respect of the property on or after 1 January 2012.
There is no exemption from USC in respect of distributions out of profits or gains on stud and woodland fees, out of income from patent royalties or out of mining profits. Income earned as a writer, composer or artist, profits from the use of woodlands, and income derived from patent royalties and leasing of farmland are also liable to USC.
There is also no deduction for –
- double rent allowances (certain urban renewal reliefs
- certain reliefs for lessors in computing the amount of a surplus or deficiency in respect of rent from premises in urban renewal areas
- donations to certain sports bodies, or
- donations to certain bodies such as charities and educational establishments.
USC arises on a balancing charge in respect of an asset, which attracts capital allowances that are deductible in computing the USC liability.
USC- employees resident and working in non- tax treaty countries.
Where an individual is not resident in Ireland for tax purposes for a relevant tax year (or part of a tax year in ‘split year’ cases) and where he /she exercises the duties of a private sector employment wholly outside Ireland, a charge to income tax on the employment income does not generally arise in Ireland. Where appropriate, on application, Revenue will issue a PAYE Exclusion Order.
USC is also not payable in respect of the employment income of a non-resident individual that is attributable to duties exercised wholly outside Ireland, where there is no charge to income tax in Ireland.
Payment of arrears / bonus where ‘split year’ applies.
Section 822 TCA 1997 provides for split year residence.
Where an individual–
- has left the State and is deemed to be resident only up to the date of leaving, and
- receives income, such as arrears of pay or a bonus, arising from the employment while he or she was resident in the State, but which is paid after he or she has left the State,
the income is emoluments to which the PAYE system applies and is liable to USC in the year in which it is paid to the individual.
All individuals are liable to pay USC if their gross income exceeds the threshold of €13,000 p.a
The standard rates of USC for 2022 are –
- 0.5% on the first €12,012 (0.5% on the first €12,012 for 2021)
- 2% on the next €9,283 (2% on the next €8,675 for 2021)
- 4.5% on the next €48,749 (4.5% on the next €49,357 for 2021)
- 8% on the balance (8% on the balance for 2021)
- surcharge over €100,000 for some
Finance Act 2022 raises the USC 2 per cent threshold from €21,295 to €22,920 for the 2023 year of assessment.
This change is made in line with the increases in the national minimum wage applicable in 2023 and will ensure that the 2 per cent rate remains the highest rate of USC that is charged on the income of full-time minimum wage workers.
There is a surcharge of 3% on individuals whose non-PAYE income exceeds €100,000 in a year. As such, a rate of 11% applies to the non-PAYE income that exceeds €100,000.
An additional rate of USC (property relief surcharge) of 5% applies on that part of an individual’s taxable income which is sheltered by any of the property or area-based incentive reliefs.
The standard rates of USC are modified in certain circumstances. In the case of an individual whose total income in the year does not exceed €60,000 and is either (i) aged 70 or over, or (ii) holds a full medical card, the 2% rate applies to all income over €12,012.
Finance Act 2019 provides that the reduced rate of Universal Social Charge for full medical card holders whose individual annual income does not exceed €60,000 is extended for a further year until the end of the 2020 tax year.
Finance Act 2020 extends the reduced rate of USC for full medical card holders under 70 years of age whose individual annual income does not exceed €60,000 for a further year until the end of the 2021 tax year.
The reduced rate of USC for those full medical card holders aged under 70 and whose income does not exceed €60,000 shall cease to have effect from the 2023 year of assessment onwards.
Finance Act 2022 extended the reduced rate of USC for full medical card holders under 70 years of age whose individual annual income does not exceed €60,000 for a further year until the end of the 2023.
Lower Rate Developments
Finance Act 2020 increases the Universal Social Charge (USC) thresholds:
– to raise the USC 2% threshold from €19,874 to €20,484 for the 2020 year of assessment, and
– to raise the USC 2% threshold from €20,484 to €20,687 for the year of assessment 2021 and each subsequent year.
These changes were made in line with the increases in the national minimum wage applicable in 2020 and 2021 and will ensure that the 2% rate remains the highest rate of USC that is charged on the income of full-time minimum wage workers.
Finance Act 2021 increased the Universal Social Charge (USC) thresholds: to raise the USC 2 per cent threshold from €20,687 to €21,295 for the 2022 year of assessment.
This change was made in line with the increases in the national minimum wage applicable in 2022 and will ensure that the 2 per cent rate remains the highest rate of USC that is charged on the income of full-time minimum wage workers.
It extended the reduced rate of USC for full medical card holders under 70 years of age whose individual annual income does not exceed €60,000 for a further year until the end of the 2022 tax year.
USC is applied in accordance with the provisions of Part 18D TCA 1997 and the Universal Social Charge Regulations 2018 (S.I. No. 510 of 2018), and the application of relevant Parts of income tax legislation where appropriate. Certain provisions of the Taxes Consolidation Act 1997 relating to income tax have been applied, without any necessary modifications,
- making of returns of income,
- keeping of records,
- making of enquiries and the exercise of the powers, duties and responsibilities
- making of assessments to income tax
- in relation to the collection and recovery of unpaid income tax, and
- penalties, offences, interest and other sanctions.
USC is under the care and management of the Revenue Commissioners and (Administration) TCA 1997 applies to USC as it applies to income tax,USC is collected through the PAYE system for employees.
Employers/pension providers are responsible for deducting USC from emoluments. Requirements in relation to the deduction and paying over of USC from relevant emoluments apply through the PAYE system.The return must be made no later than the 14th of the following month.
Revenue may issue a statement to an employer after the end of a month setting out a summary of the USC liability for the month. Such statement will be based on the payroll submissions received from the employer. In the absence of the employer making a return before the return filing date (or where a statement is issued after the return filing date, on that later date), the statement will be deemed to be a return made by the employer on that date.
If, however, the information on the statement is wrong, the employer will not be deemed to have made a return and must ensure that full and correct information relating to payments of emoluments to employees has been submitted to Revenue.
Self employed and others with income must pay it as part of their annual tax return. Self-employed individuals make a payment of USC along with their preliminary tax payment by 31 October, with any balance payable by 31 October in the following year.
Personal Retirement Savings Account
An employer contribution to a Personal Retirement Savings Account (PRSA) is chargeable to income tax in the hands of the employee as a benefit-in-kind under section 118 TCA 1997. However, such contributions are exempt from USC.
While employer contributions to a PRSA are a taxable benefit in the employee’s hands, these same contributions qualify for full tax relief subject to certain age-related limits. They are not subject to PAYE and, therefore, are not chargeable to PRSI under the PAYE system (both employer and employee share).
Retirement Lump Sums
There is a lifetime limit of €200,000 on the amount of retirement lump sums that are exempt from income tax. Amounts that are in excess of this limit are subject to income tax in two stages.
The portion between €200,000 and €500,000 is taxable at a special 20% rate of income tax and any portion above that is taxable at the individual’s marginal income tax rate. USC is only payable on the portion above €500,000.
USC is to be paid to the Collector-General with form RTSO1 on gains made on the exercise of share options and included with the amount of the RTSO in the “Total Tax Liability” box. A separate USC amount should not be inserted on the form. When the Form 11 is subsequently filed, the details of the amount of the gain and the amount of RTSO and USC paid with the RTSO1 should be entered.
Permanent Health Insurance
USC applies to an employer’s contribution to a Permanent Health Insurance Scheme. Such a contribution is treated as a taxable benefit-in-kind.