Older couples pay nearly €5,000 less tax on average income

People over 65 pay almost €5,000 a year less in tax on an average income of €36,000 than younger people earning the same amount, a study has found.

The research, by think tank Public Policy.ie, looked at the treatment of people aged 65 and over in terms of income tax, universal social charge (USC) and Pay Related Social Insurance (PRSI). The tax advantages for older people are in addition to other benefits such as free travel and medical cards.

A person, aged 65 or over, is exempt from income tax where their total income is less than €18,000 for a single person or €36,000 for a couple. This means an elderly married couple jointly earning €36,000 pay €4,716 less in tax than a younger couple with the same income who are in the PAYE system.

The study, funded by Atlantic Philanthropies, finds the tax differential is similar for self-employed people with the advantage particularly noticeable with higher incomes. Elderly single people do not fare quite as well with a single person on €20,000 having an extra €994 and one with an income of €30,000 getting an extra €2,235.

Advantages

A variety of elements in the tax code combine to give such advantages to older people. The study points out that anyone aged 65 or over at any time during the tax year qualifies for an age credit of €245 for a single person and €490 for a couple (only one of them needs to be 65 or over).

Where their income is above these exemption limits, the tax is capped at 40 per cent of the excess provided the income does not exceed twice the limit.

The State pension (like all social protection payments) is exempt from USC even though it is regarded as income for the purposes of income tax. There is also special treatment when it comes to PRSI with people of pensionable age not liable for the charge.

The study concludes that, while a measure of preferential treatment of older people may have public and political support, the question arises about whether such stark differences in tax liability for people on the same income are justified.

The fact that a greater proportion of over-65s vote than any other age group has an impact on political debate. This was evident in the run-up to the recent budget when the Government was under strong pressure from Fianna Fáil and the Independents to increase the old age pension by €5 a week.