Increases in income tax exemption limits in the 1998/99 Budget will mean more people will come out of the tax net and some pensioners will pay less tax. (Income exemption limits are the income totals below which individuals pay no income tax, according to their age and marital status.) The adjoining table shows the new income exemptions limits announced by Mr McCreevy for the 1998/99 tax year, and the limits in the current tax year.
Exemption limits vary according to the age, marital status and the number of qualifying dependent children: they increase with age. 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 totalled - from a job, interest on savings, dividends from shares, rental income and any other income earned or unearned. However, in calculating total income, the Revenue Commissioners allow certain deductions from this figure.
As well as allowable mortgage interest, employees can also deduct from the total income figure any pension contributions and any work-related expenses agreed with the Revenue. Self-employed people can deduct retirement annuity payments and capital allowances from their total income figure.
When the total income has been calculated for income exemption limit purposes, it should be examined again in the light of family circumstances - given that the income limits increase with the number of qualifying dependent children.
If the total income - after the allowable deductions are made and dependant allowances are added - is at or below the income exemption threshold relevant to the individual's age, he or she is not liable to pay any income tax.
If the income is only slightly above the income limits, the individual may still qualify for reliefs. The Revenue Commissioners allow marginal reliefs in such cases. But the tax must be paid and the taxpayer then has to claim the marginal relief from the Revenue.