You can be up to €1,040 worse off for increase in salary in Health Levy fiasco.

Tax system means a €1,000 pay rise can leave you €290 worse off depending on how much you earn.
Lets see this in action and compare your take home pay from earning €25,000 versus €26,000.

So unbelievably a €1,000 payrise will leave you €290 worse off.

How does this Happen?

The Government loves levies. First PRSI, then the Health Levy and more recently we have learned to doff caps to the Income Levy in every payslip.

In the excitement of the Income Levy, don’t forget that the Health Levy was also increased in the last budget from a basic rate of 2% up to 4%.

Details

With the Health Levy, you do not have to pay this until you earn more than €500 a week, equivalent to €26,000 a year. However once you earn a penny over this limit, your FULL pay is charged the Health Levy.

Effectively, if you earn one cent over the €500 a week, you will be hit with an annual charge of €1,040, (€26,000 times 4%). Ouch!

Action needed.

It is critical that the government act to remove this anomaly in the tax system. There has been a lot of talk this year from the taxation commission and politicians that we need to create a more equitable tax system, fairer to everybody. It is essential that in the 2010 Budget this December 9 that this issue is dealt with as a priority.

Reduce the pain.

Of course there are ways to reduce the impact of this on your take home pay if you have a flexible employer, which we will look at in a later post.