There was good news for the self-employed in this month’s Budget; but not as good as some might have hoped. Efforts were made to reach the goal of tax equalisation between those who work for themselves, and those who get paid through the PAYE system with the introduction of a new €550 tax credit, but discrepancies, such as the 3 per cent levy on self-employed income over €100,000 remain. The main measure introduced in the budget which is of interest to people who work for themselves is the “earned income credit” of €550, which is set to cost the Exchequer about €61 million a year.
Intended to narrow the gap between the self-employed and PAYE employees who receive a credit of €1,650, the credit will help people to cut their tax bill by €550 every year. However, if you have a mix of earnings and already benefit from the PAYE tax credit, you won’t benefit from the new measure, as under Revenue guidelines, “the combined tax credits cannot exceed €1,650”. Landlords however, will not benefit from this as the credit is applicable only to trading or professional income – not so-called “unearned” income such as that derived from rents. And it will take some time for many people to benefit from the new credit, given that it will only come into play in January 2016 – and you won’t file your 2016 tax return until October/November 2017.  One big change for those filing returns for 2014 – and who are not self-employed – is the introduction of PRSI at a rate of 4 per cent on “unearned” income. First signalled back in 2012, this measure is finally coming to pass, and applies to unearned income from January 1st 2014. Self-employed people have already been paying this additional tax.
“Unearned income for everyone else will become subject to PRSI in 2014. This means that PRSI will be payable on income generated from wealth such as rental income, investment income, dividends and interest on deposits and savings,” Minister for Finance Michael Noonan said discussing the measure back in Budget 2013. John Lowe, The Money Doctor advises that there are some exceptions however. Firstly, if you are over 66 you are typically exempt from PRSI, which means that you won’t be liable to this.

Remember however that PRSI is calculated separately in respect of each spouse. According to Revenue, this means that if one spouse is over 66, they won’t be liable to PRSI, but if the other is less than this, they will be caught by the new charge.  Secondly, if you are not deemed to be a “chargeable” person by Revenue, you won’t be caught by PRSI. To avoid this, your total unearned earnings, derived from rental income or interest on deposits etc, should not exceed €3,174 a year. If you are deemed by Revenue to be a so-called “chargeable person”, you must submit a Form 11 every October/ November just like every other self-assessed person.

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