Working out USC on mix of PAYE and self-employed income

In 2015 I will be in receipt of an occupational pension taxed under PAYE of about €70,000 per annum. In addition, I will have self-employed income of another €70,000.

How will my income be treated for USC purposes? Are the PAYE and self-employed income separately assessed or do I end up paying the 11 per cent rate on the excess of the combined incomes over €100,000?

Mr GB, email

I have to say you had me flummoxed on this one, and I couldn’t find anything in the literature that gave me a cut-and-dried answer, so I turned to Revenue.

They assure me that you will not be paying universal social charge (USC) at 11 per cent on any of your income.

The 11 per cent rate, they tell me, applies only to people who have €100,000 or more in income from non-PAYE sources.

As your self-employed income is in the region of €70,000, it will not reach or pass that threshold – even though you are fortunate enough that your overall income puts you well past the threshold.

However, as your total income is above the €70,044 mark, you will become liable to the 8 per cent rate on anything above that level so you will end up paying additional USC in 2015. Do married couples get higher USC threshold? I read your advice last week in The Irish Times re: the rate of USC for over 70s, and note that the rate increases if you earn more than €60,000/€70,000. Does that limit apply to both single persons and couples, or are a married couple entitled to more.

Mr B McM, Dublin

If you are over 70 and have gross income – excluding welfare payments – of less than €60,000, you qualify for reduced rate universal social charge. That means, like everyone, you will pay 1.5 per cent USC on the first €12,012 of your income – assuming you earn at least that much; if not, you pay nothing. Above that €12,012 threshold, you will pay a rate of 3.5 per cent on the balance of your income.

If however, your income over and above welfare payments is above €60,000, you will be able to avail of the 3.5 per cent rate only on income between €12,013 and €17,567. On anything above that, you would pay USC at 7 per cent. And there is also a threshold above which the universal social charge is levied at a new higher 8 per cent rate. That figure is €70,044, and it doesn’t matter at that income level whether you are 70, older or younger.

As the charge is levied individually, there is no additional entitlement to a higher threshold for a married couple. However, each person is assessed on their own income, so if both spouses have income in their own right, then their liability to USC is calculated on that, not on the other spouse's income. Also, to emphasise again, you should remember that USC is not levied on social welfare payments, including the State pension. USC does not apply to State pension Thanks for your recent answer on USC. Perhaps you could confirm that the rates apply to pensions received from a former employer and that the contributory State pension is ignored in determining income exposed to USC?

Mr M McC, email

I can indeed. Social welfare payments are explicitly excluded from any calculation of gross income for the purposes of assessing liability to the universal social charge.

So, it is only payments from occupational (or private) pensions that are liable to the charge – along with any other income from non-welfare sources.

Automatic relief for Vodafone shareholders

Is there a need to do anything where the Vodafone payment was less than €1,000 and, second, where my wife and I opt for joint assessment, is the €1,000 per person? We both got payments of €548.60? I can understand your nervousness on this issue given how chaotic the return of value exercise proved for so many Vodafone shareholders. However, the good news is that you don't need to actively do anything to benefit from the Finance Bill measure that ensure any payment under the return of value below €1,000 is deemed to be capital by the Revenue and not income as the Vodafone default provision had it.

Of course, we will need to wait until the Bill becomes law before we can say, with finality, that there will be no tax bill but it is inconceivable that any politician would vote down that particular measure.

Once it is passed, if you received less than €1,000 in the return-of-value exercise last February, it will be deemed as a capital payment. As all original Telecom Éireann shareholders remain well in the red on their investment, the issue of capital gains simply does not arise and you have no need to actively inform the Revenue.

My understanding from the wording of the Bill is that the relief is per shareholder. On that basis, if you or your wife were separately listed as shareholders, you are each entitled to relief on a sum of less than €1,000 arising from this particular transaction – do bear in mind that the Finance Bill measure covers only the Vodafone return of value, not any other similar arrangement.

According to your figures, you each received less than €550, so you would each be eligible for treatment of that payment as capital under the Finance Bill measure. The fact that you are jointly assessed for income tax has no bearing on the issue.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice