New jobless no longer face extra tax after rule changes

PEOPLE MADE redundant in the first four months of the year no longer face an additional tax bill after the Government adjusted the rules for the higher income levies in the Finance Bill.

However, employees in receipt of bonus payments in the first quarter of the year will face the additional tax charges.

The Bill, published yesterday by the Department of Finance, confirms that income levies will double from May 1st to 2 per cent, 4 per cent and 6 per cent respectively, and that the thresholds will be lowered along the lines announced by Minister for Finance Brian Lenihan in his Supplementary Budget last month.

The use of an annual composite levy rate to take account of higher or irregular earnings in the first part of the year is retained in the Bill. The Bill amends levy terms so people made redundant before the end of April will be subject to the levy at the older, lower rate.

Previously, some of the 27,983 people who lost their jobs between January and April of this year faced a retrospective tax bill on part of their redundancy pay. The issue was more acute for long-serving employees on generous voluntary redundancy terms.

The change had been expected after senior Government figures acknowledged that it had never been intended to “drag” redundancy payments paid out to people between January and April into the higher levies. The Government had already made similar provision in relation to the new higher health levies for people in receipt of ex gratia redundancy payments in the Social Welfare and Pensions Bill, which passed through the Oireachtas last month.

However, there is no mention in the Bill of measures to exclude traditional bonus payments from the impact of the new levy. This will be a blow particularly to those in the financial services sector, where performance-related bonuses are traditionally paid in the first quarter of the following year.

There had been some expectation that the Finance Bill would provide a mechanism to exempt regular bonuses from the backdating of tax via the composite annual rate, as the measure was designed primarily to frustrate people – largely self-employed – who had frontloaded their income to avoid higher income levy rates that had been widely flagged ahead of the emergency budget.

Under the terms of the Finance Bill, PAYE taxpayers who received such bonuses up to the end of April will now face an additional tax bill on those payments.