How much could you get back in your pocket with the potential new income tax cut?

TÁNAISTE SIMON HARRIS has said potential new income tax cuts in the upcoming budget will make a real difference to families across the country. But just how much money will people actually get back in their pockets?

Public Expenditure Minister Jack Chambers said earlier this week that Budget 2027 will only amount to “a few hundred euro” back, but the Tánaiste told reporters at the Fine Gael think-in that “hundreds of euros” will make a difference.

The Tánaiste did not outline the budget details yet, but said the current entry point of €44,000 at which workers hit the higher tax rate is “still too low”.

The total budget package this year will consist of €8.5 billion, made up of €7 billion in additional public spending and a tax package of €1.5 billion in new measures.  

There is speculation that Ireland’s higher tax band will increase by €2,000. This move would cost the government €460 million in its first year, according to statements made by Harris in the Dáil in June.

There are two main tax rate bands in Ireland: a standard rate of 20% and a higher rate of 40%. Currently, the standard rate for an individual applies to all earnings up to €44,000, and all earnings above this are taxed at 40%.

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People who are taxed as a couple and have a single income can avail of the lower tax rate on the first €53,000 they earn, while those with two incomes are taxed at the lower rate for their first €88,000 combined earnings. 

The tax bands are also slightly different for lone parents where the first €48,000 is taxed at the lower 20% rate.

If the entry point for the higher rate of tax was increased by €2,000 in Budget 2027, the maximum amount an individual earning €46,000 or above could save is €400 annually.

Jointly assessed couples could save up to €800 annually, if both earn enough to enter the higher tax bracket. If only one meets the higher tax threshold, the couple will save €400 annually.

The tax savings will occur because €2,000 of your earnings will be taxed at the lower rate of 20%.

If the higher rate tax band increased by €2,000 year-on-year for the next four years, this would result in savings of €4,000 for an individual or couple on a single income, and up to €8,000 for a two-income couple. 

These figures don’t include PRSI or USC reductions.

Budget 2027 will be laid before Dáil Éireann by Harris and Chambers on Tuesday 6 October.