“Revenue is chasing tens of thousands of pensioners over owed tax,” the headline read in words that could cause some upset. But, for those who got letters from Revenue in recent weeks, the truth is nowhere near as alarming.
Yes, the Revenue Commissioners did send letters out to 68,000 people over the age of 65 about their 2022 tax affairs, but that was part of a larger exercise in which a total of nearly 270,000 “reminders” were sent to people as Revenue looks to close off files for the 2022 tax year, not a targeting of pensioners.
And, as Revenue has been keen to point out, the letters were reminders, not tax demands.
The tax officials are clearly treading careful after a furore over what it later admitted were insensitive letters were sent to around 115,000 pensioners back in 2012. It is not quite clear why there has been no such campaign in the intervening decade, but we are where we are.
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However, if you have received one of these letters, it is quite likely that you could have some income tax owing for that year. And, indeed, for the years between then and now as well.
So, how has it happened and what do you need to do?
Sticking with pensioners, the reason people might find themselves with a tax bill is down to their sources of income.
The Department of Social Protection pays the State pension with no tax deductions as that income is comfortably below the threshold at which you would be liable for income tax.
The income tax threshold for a single or widowed person over the age of 65 is currently €18,000 – and double that, €36,000, for a couple. The maximum income under the State pension – including the Christmas bonus week - is €15,333.
But if you also have a private pension from your former workplace, it is almost certain that you will be liable for tax. Most people know this, to be fair, and pay the tax on the occupational pension – either at source through PAYE or by filing a return.
The issue is that they sometimes forget that once their income is over the exemption limit, all of that income is liable for tax – the untaxed State pension as well as the occupational pension.
Other income is also taxed. Most people are aware that any rental income they receive for a property they let out is taxable – once it is over the rent-a-room limit of €14,000 – but many might not return any income from share dividends, for instance, for tax.
Let’s stick with the state pension for now. Back in 2022, this was paid at a maximum rate of €253.30 a week, or €13,424.90 for the year. If your overall income means it is liable for the standard 20 per cent rate of income tax, you will owe the Revenue €2,685.
The good news is that there will be no reckoning for universal social charge (USC) or PRSI. Neither is levied on social welfare payments regardless of overall income. In any case, people are no longer liable for PRSI on any income once they turn 66.
However, if your “other income” is not a social welfare payment, USC might still be an issue. In 2022, it was levied at 0.5 per cent up to €12,012, at 2 per cent from there up to €21,295 and 4.5 per cent on anything over that – at least up to €70,044.
So what do you have to do now?
I would suggest that regardless of whether you do have tax due on your state pension or other income, you should file a return for 2022 now, if you have not already done so.
Given that Revenue believes tax may be due, it seems sensible to assume that the people in receipt of letters are already paying tax – either by filing a Form 12 tax return through Revenue’s MyAccount online service or, through its ROS service for those filing Form 11 returns in relation to income from self-employment.
I’ll assume those most discomfited by these letters are less sophisticated taxpayers so we will work through the MyAccount process.
First up, log in to your Revenue account using your PPS number, your date of birth and the password you created when the account was set up. Revenue will then send a single-use verification code to your phone. Input this and then go to PAYE Services, generally the first (blue) box on the page that opens when you log in.
Next, click on: “Review your tax for the previous 4 years”, then select 2022 from the drop down menu and click on “Request” to get your preliminary end of year statement.
This should give you an assessment of what Revenue thinks you have received in income and have paid to date in tax, together with any tax it considers remains outstanding.
As the Department of Social Protection talks to Revenue, it should income your state pension income.
The next step is to complete an income tax return, especially if there are outstanding tax credits that you have not claimed – for things like medical expenses, mortgage interest, rent etc. These may go some way to mitigate any outstanding tax bill.
The online system takes you through the form step by step and there are guidance notes to help you on your way. Once you are happy it is completed, you submit it.
If you have previously submitted a return that needs to be amended in light of the Revenue letters, you can do so by selecting the year in question – 2022 in this case – and then clicking “Amend” next to your annual return.
The main thing is not to get too worried about any outstanding liability, but also do not hide your head in the sand.
Revenue has said in its letters that even where there has been an underpayment, no money will be due immediately – although if you have it, you might wish to get it done and dusted immediately.
For those whose financial wriggle room in retirement is tight, Revenue says it will adjust any credits you are due going forward to retrieve any money owed.
Of course that will reduce your income so it is not a painless exercise. And, once you have 2022 out of the way, you can expect to have to go through a similar exercise for the subsequent years.
The bottom line is that no one should panic at receiving one of these letters, but you do need to engage with them. If money is owing, you are always better going to Revenue than to have them coming to you.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address.
If you missed last week’s newsletter, you can read it here.
