Thousands of workers will receive more money in their wages after the government announced an increase to the income threshold for the higher rate of income tax in Budget 2023.
Currently, workers pay 20% on any income they earn up to €36,800 and will pay 40% on the remainder above that sum. Finance Minister Paschal Donohoe has announced that workers will now pay the lower rate of 20% on earnings up to €40,000 before entering the higher rate.
That means that an extra €3,200 of people's gross earnings will be subject to the lower rate, but what does that mean for your pocket?
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It effectively puts €640 a year back into a worker's wages. If you're a PAYE worker earning €50,000 for example, you could stand to see between €50 and €60 more in your pay packet each month. A worker on this salary will now pay €8,000 in tax on the first €40,000 and another €4,000 on the final €10,000 of their gross pay.
That means they will be paying €12,000 in income tax next year and actually taking home €38,000. That equates to €3,165 take-home pay each month. Under the old system, the same worker would have been paying €12,640 in total income tax, including €5,280 at the higher rate on the final €10,000 of their salary.
Workers earning €45,000 a year, €5,000 above the new higher rate income threshold will take home €35,000 a year after tax as opposed to €34,360. Someone earning €70,000 will take home €50,000 or €4,165 per month under the new bands as opposed to €49,360 under the old ones.
On top of that, the Minister announced an increase in personal tax credits by €75 each. Also the 2% band of USC rises to exclude minimum wage workers. This could be worth an extra €75 to €115 per year in workers' pockets on top of the headline income tax savings.
A €500 Renters tax credit has also been introduced while the Home Carer Tax Credit will be increased by €100 to support stay-at-home parents.
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