Increases in the income exemption limits for those aged 65 years and over announced in the 1999 Budget will take around 15,000 people out of the tax net while some others will face a reduced tax bill.
Raising the exemption limits removes people from the tax net because when the income of an individual or a married couple is below the limits set they will not have to pay any income tax. As the limit rises more people on low incomes are not liable for income tax. The adjoining table shows the new income exemption limits announced by Mr McCreevy for the 1999/2000 tax year. No increases have been announced for those under 65 years. Mr McCreevy pointed out in his Budget speech that the increases in personal allowances and income tax bands will remove many people from the tax net. They will create an effective exemption limit of £5,200 for single people and £9,400 for a married couple with one earner. These changes mean a single worker will not pay tax on any income below £100 per week while a married worker will be exempt on income under £181 per week. But because marginal relief will not apply to the new allowances, married workers with a number of children may be better off remaining on the lower income exemption limit to calculate their liability to tax.
The new income exemption limits for those aged over 65 years, which will come into effect from April 6th 2000, will increase significantly from current year levels.
Increases in the limits in the 1998 Budget removed 15,000 people from the tax net. In the forthcoming tax year, 1999/2000, another 80,000 will not pay tax because their incomes are below the new income exemption limit.
Exemption limits vary according to the age, marital status and the number of qualifying dependent children. They increase as the taxpayer gets older.
To determine whether a taxpayer is liable for income tax, it is necessary first to work out total income. Income from all sources must be included, - from a job, a pension, interest on savings, dividends from shares, rental income and any other income earned or unearned. This is known as gross income.
However, in calculating total income the Revenue will allow certain deductions from this figure. Employees can deduct from their gross income figure any pension contributions and any work-related expenses agreed with the Revenue. The self-employed can deduct retirement annuity payments and capital allowances from their gross income figure. Gross salary less deductions is known as total income.
If an individual's total income - after the allowable deductions are made - is at or below the income exemption threshold relevant to the individual's age and including any allowances for dependent children, he/she will not have to pay any income tax.
Remember to examine the income exemption limits with regard to the taxpayer's age and family circumstances - income exemption limits increase with age and according to the number of qualifying dependent children.
In addition there is a measure of relief for those whose income is only slightly above the income exemption limits. This is called marginal relief. It is available where total income is less than twice the exemption limit. Where marginal relief applies, income tax must be paid and the individual then has to claim marginal relief to get a repayment.
Marginal relief limits the tax to be paid by the individual to 40 per cent of the difference between their income and the exemption limit where this is lower than the tax bill already calculated. It is given as a refund of tax already paid.