INCREASES in income exemption limits in the 1996 Budget mean more people will not have to pay any tax on their incomes in the next tax year. Income exemption limits mean anyone earning below amount is not liable for any income tax. The table shows the new income exemption limits announced by Mr Quinn for the 1996/97 tax year and the limits that apply in the current 1995/96 tax year.
Exemption limits vary depending on age, marital status, and the number of qualifying children.
Income exemption limits increase with age, allowing people over 65 years to earn more without falling into the tax net.
To determine if you are liable for income tax, you will first have to work out your total income. Income from all sources must be added together - income from a job, interest from savings, dividends from shares and any other income earned or unearned.
But the Revenue Commissioners allow certain deductions. As well as allowable mortgage interest, employees can also deduct any pension contributions and any work related expenses agreed with the Revenue Commissioners from their income figure. Self employed people can deduct retirement annuity payments and capital allowances from their income figure.
When you have calculated your total income for income exemption limit purposes, examine the limits again in the light of your family circumstances. The income limit increases according to the number of qualifying dependant children. In 1996/97, there will be no change in the income exemption limit for dependant children - £450 for each of the first and second dependant children and £650 for each subsequent dependant child.
If your total income, when the allowable deductions are made, is below the income exemption threshold relevant to your age and the number of qualifying children, you are not liable to pay any income tax. The Revenue Commissioners allow marginal relief where income is only slightly above the limits.
However, tax must be paid and the taxpayer must claim the marginal relief from the Revenue Commissioners.
Example: Liam is just under 40 and earns £11,150. He and Jean have six children.
In 1996/97, the applicable income exemption limit (married, under 65 years) will be £7,800. Six dependant children will increase the amount he can earn before he becomes liable for tax to £11,300 (£7,800 plus £3,500). The increase in the exemption limit means that Liam will not have to pay any income tax next year.
By contrast, in the current year, the applicable income exemption limit is £7,400. The children increase this income limit to £10,900 - £250 below his current income. He is entitled to marginal tax relief but will have to pay an income tax bill of £1,407 or about £27 a week in the normal manner. His removal from the tax net boosts his weekly income in the next tax year by about £27 a week.