There have been major changes to Pay Related Social Insurance (PRSI) payments, which means that most PAYE workers will pay an extra €264 per year.
The PRSI changes announced in the Budget today will bring in €339 million to the Exchequer per year in a move which has been criticised by the Opposition for impacting lower income families most.
The weekly PRSI allowance for employees earning over €352 per week has been scrapped, Minister for Finance Michael Noonan announced today, Currently, such employees do not pay PRSI on the first €127 of their weekly income.
This is expected to bring €289 million for the Exchequer per year. It represents almost a quarter (23 per cent) of the revenue raising measures announced today, second only to the property tax.
Workers will pay PRSI on an extra €127 per week at a rate of 4 per cent per year, which is €264.16 per person.
Employees earning €25,000 per year will see their PRSI payments increase by 36 per cent (€264.16) while employees earning €175,000 per year will see their PRSI payments increase by 3.9 per cent (€264.16).
Mr Noonan said PRSI was good value, especially “for those on the lower part of the income distribution, those with shorter contribution histories, and also the self-employed”.
He also announced that the minimum level of annual PRSI contribution for self-employed people would be doubled to €500 (from €253). This is expected to bring in €18m per year for the Exchequer.
“Both of these measures will make a fairer link between the amount of contributions and the significant benefits received,” Mr Noonan said.
He described the PRSI contribution as “progressive and redistributive because people at the higher end of the income distribution generally get back less than they pay in".
He also announced an extension of PRSI to income from a trade or profession and unearned income for modified PRSI rate payers from January 1st 2013. All other unearned income such as rental income, share and dividend income, interest on deposits and savings will be subject to PRSI from 2014. This will bring in €8 million for the exchequer in 2013 and €32m in 2014.
As anticipated, Mr Noonan announced a three-point increase in universal social charge (USC) for those over 70 with incomes of €60,000 or more. This will bring the USC rate from 4 per cent to the 7 per cent standard rate USC that applies to the under 70s.
This move is expected to bring in €25m in 2013 and €38m in a full year to the Exchequer.
It would mean a couple in their 70s with a private pension of €100,000 would see their universal social charge payment increase by 40 per cent (from €3799 to €6319)
In addition, he announced that maternity benefit will be treated as taxable income (but exempt from USC). The measure is expected to bring in €40 million to the Exchequer.
“This measure will correct an anomaly so that women on maternity benefit will pay the same level of income tax as when they are working.” he said.
Fianna Fail finance spokesman Michael McGrath described changes in PRSI as “income tax through the back door” which would have the “greatest impact on low income families”.
He said a worker on €20,000 per year and a worker on €200,000 per year would see the same increase in PRSI.
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