Slight rise in take-home pay

Personal tax: As widely expected, families with young children have done the best out of Budget 2006 following the introduction of the early childcare supplement worth €1,000 a year for each child under the age of six.

But Minister for Finance Brian Cowen's €887 million personal tax package, including increases to personal tax credits, the PAYE employee credit and the standard rate tax band, will give most families and individuals marginally more take-home pay in 2006.

A €220 increase in the employee tax credit - taking it up to €1,490 - a €50 increase in the single person's tax credit and a €100 increase in the married person's tax credit are among the measures that will increase workers' take-home pay next year.

New standard rate tax bands will apply from January in a measure costing €456 million.

Widening the standard rate tax band by €2,600 means that an estimated 90,000 workers no longer have to pay tax on any earnings at the higher 42 per cent rate.

The point at which a single worker starts paying tax at the 42 per cent rate is now €32,000. The standard rate tax band for a widowed or single parent also increased by €2,600 to €36,000.

The effect of the measures mean that a single person taxed under PAYE will have between €5 and €16 extra in their pockets every week, according to Government figures.

Those earning around €35,000-€45,000 will receive the highest increases of €16 a week or €842 a year. However, as a percentage of their net income, the biggest Budget winners among single workers are people who earn around €22,000, who will see their net incomes rise by about 3.7 per cent, or €14 a week.

Some high earners will see the effect the increased tax credits and tax bands reduced by a rise in the employee PRSI ceiling.

The amount of earnings on which people must pay PRSI at a rate of 4 per cent will rise from €44,180 to €46,600 from January.

For single-income married couples, the standard rate band also increased by €2,600, meaning a married worker in a single-income family can now earn up to €41,000 at the standard 20 per cent rate before moving to the top rate.

Single-income married couples taxed under PAYE with a household income of just over this threshold will benefit the most. A single-income married couple with take-home pay of around €45,000 will see their net income rise by 2.4 per cent, or €17 a week, as a result of their lower tax liability.

Dual-income married couples received a €5,200 increase in their standard rate band, bringing their standard rate cut-off point to €64,000, exactly double that of a single worker.

For families with children under the age of six, the new early childcare supplement will add an extra €83 per child to their monthly household budgets.

The new supplement will be paid in quarterly chunks of €250 from April 2006. This means that it will be worth €750 per child under the age of six in 2006. Like child benefit payments, the early childcare supplement will be exempt from tax.

Higher rates of child benefit payments will also add to family incomes from April.

The rate for the first and second child increases by €8.40 a month to €150, while an increase of €7.70 for the third and subsequent child takes this monthly rate up to €185.

The effects of these two measures mean that a dual-income PAYE-taxed income married couple with two children under the age of six will see their net incomes increase by up to 7.1 per cent, depending on their level of income.

Other changes to the tax system include a rise in the threshold at which people must start paying the 2 per cent health levy on their earnings. The increase from €20,800 to €22,880 will also benefit about 72,000 lower paid workers.

The age-related tax exemption limits have been increased by €500 for a single person and €1,000 for a married couple. This means that a single person over 65 can now earn €17,000 without paying tax, while a married couple can earn up to €34,000.

There were also increases in the incapacitated child tax credit, the blind persons' tax credit and the widowed parent tax credit.

There was some good news for tenants, as tax relief can now be claimed at the standard rate on up to €1,650 in rent paid per year, up from €1,500. This works out as a tax credit of €330. Credits worth double this amount apply to married couples and people aged 55 and over.

Tax relief at the 20 per cent rate will be allowed on trade union subscriptions up to a value of €300, a rise of €100, making a tax credit of up to €60 a year.