Tax Credits & Reliefs >> Income Tax Exemption for over 65s

There is complete exemption from income tax for individuals with a low income. The exemption limit for under 65’s was abolished from 2008 onwards. See chart below which shows the income limits for tax years 2006 to 2011. It is the intention to phase out this relief by 2014. For 2011 the income threshold has been reduced to €36,000.

The income threshold for a single person aged 65 or over for the tax year 2010 is €20,000. For a married couple once either spouse is aged 65 or over the threshold is €40,000. If you are married and have dependant children the income threshold increases for each child. For each of the first two children the threshold increases by €575. For each subsequent child the threshold increases by €830.

Where a person’s income is marginally over the exemption threshold the excess income over the threshold is taxed at a fixed rate of 40%. Two calculations are in fact necessary when this applies. The first using the marginal relief calculates the tax on the excess income over the relevant threshold at 40%. The second is calculating your tax in the normal way and claiming all relevant tax credits. You then use the calculation, which gives the lower tax liability. Our tax calculator automatically does this for you and uses the most favourable option for your own personal circumstances.

This particular exemption causes a lot of confusion for people. Your income must be below the above exemption limits to be tax exempt. If your income exceeds the exemption limit then you will be liable for tax. However where it is marginally over the threshold your tax liability will not be significant. In this situation you may need to make a claim to your tax office for the benefit of the marginal relief. A lot of people overlook this claim so it is worth checking to see if you may be due a refund. The marginal relief benefit has been abolished for under 65s from 2008 onwards.