Total Tax Exemption
There is a complete exemption from income tax for individuals aged 65 or over with a low income.
The income threshold for a single person aged 65 or over is €18,000. For a married couple once either spouse is aged 65 or over the threshold is €36,000. If you are married and have dependent 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.
Marginal Tax Relief Exemption
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. No marginal tax relief is allowed if your income exceeds double the exemption threshold.
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 favorable 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.