THERE ARE few elements of the Budget that have caused as much widespread concern and confusion as the universal service charge (USC) and it was only when people started receiving their first pay packets of the new year that they saw the full implications of the new tax.
The USC is a tax payable on gross income – including pension contributions – and replaces the supposedly temporary health and income levies which the Government had introduced in previous budgets. It does not replace PRSI, and people have to continue to pay that as normal.
Once a person’s gross income goes above an annual threshold of €4,004 or €77 per week they become liable for the USC.
The rates of universal social charge are 2 per cent on the first €10,036, 4 per cent on the next €5,980, and 7 per cent on the balance.
People over 70 are not being asked to pay the top rate and instead pay at 4 per cent.
While medical card holders were exempt from the health and income levies, they are not exempt from the new charge.
Under a modification of the Finance Bill which the Minister for Finance Brian Lenihan announced yesterday, however, the charge imposed on medical card holders will fall from 7 per cent to 4 per cent.
Mr Lenihan described the lower rate for medical card holders as a transitional measure, and he said it would apply for the lifetime of the national recovery plan.
The move announced yesterday will cost the Exchequer about €80 million and to offset that cost the self-employed are going to have to pay a higher levy on income above €100,000.
While most of the population in receipt of an income will be liable to pay the charge at one of the three rates, there are some exemptions.
All social welfare payments are exempt from the USC, as are payments made in lieu of such payments including Community Employment Schemes and Back to Education Allowances.
Income already subjected to Dirt is not liable, and statutory redundancy payments are similarly exempt.
In addition, ex-gratia redundancy payments over the statutory redundancy amount are exempt from income tax, and therefore also exempt from the universal social charge up to certain limits. These limits are up to €10,160 plus €765 per complete year of service over and above the statutory redundancy payments
Expense payments which compensate for actual expenses incurred while a person is doing their job are not subject to the charge but allowances which form part of a gross income are subject to it.
