Note: This article is a guide, and is no way intended to be used as legal, tax, or financial advice. Please contact a legal or financial advisor if you need more information.
Universal Social Charge (USC): a guide for employers
Patrick Whatman
Published on April 4, 2024
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The Universal Social Charge was introduced as a way to make Ireland’s income tax system fairer and easier to navigate. It applies to the vast majority of Irish employees, with very few exceptions.
As such, companies must understand the rules and have systems in place to calculate, report, and deduct what’s owed.
Thankfully, the rules and rates are fairly simple to understand. And because there are so few exceptions, most companies won’t have to deal with uncommon or unique cases.
Here’s a brief guide to the USC scheme in Ireland, who pays, and how much.
What is the Universal Social Charge (USC)?
USC is an income tax which applies to an employee’s gross income. Unlike the pay-related social charge, this includes income from sources other than employment.
Introduced in 2011, it replaced two earlier charges: the income levy and the health levy. At the time, nearly half of Irishearners paid no income tax. These levies and pay-related social charges in place were complex to administer and pay, with the different rates and obligations applied.
The health levy in particular was seen as burdensome. At the time, it applied only to individuals earning more than €26,000. But once an employee crossed that threshold, they had to pay the levy on all their income. This “step effect” meant that some were better off earning less.
The USC was chosen as a way to both widen the tax base, and simplify the various tax statuses in place. The USC threshold also has step built in, but because the threshold is much lower and the first rate is only 0.5%, it doesn’t create the same incentives as the health levy did.
Who pays?
This charge is applied to all income for people in Ireland earning more than €13,000 per year. There are a few exceptions (which we’ll explore below), but it is otherwise a staple tax applicable to the vast majority of employees. There are also no tax credits.
Married couples and civil partners are treated as separate taxpayers.
What is taxable income for USC purposes?
Because the USC applies to gross income, it’s not limited to salary or employment income. It also applies to “notional pay,” which includes benefit-in-kind, pension contributions, and other non-cash benefits.
USC payments are included as part of an employee’s normal PAYE and processed during payroll, along with other taxes owed.
What is USC used for?
Unlike National Insurance in the UK or similar social charges across Europe, USC funds are used to fund public services but are not specifically carved out for state pensions, illness benefits, healthcare provisions or other entitlements.
USC rates for 2023-24
Rates of USC are broken into standard rates, reduced rates, and other rates. Most employees in Ireland will pay standard rates. Reduced and other rates only apply in very narrow circumstances, which we’ll see next.
Standard USC rates for 2024
Like other income taxes, universal social charge is progressive, meaning the rate band increases as the employee’s income passes each cut-off point.
| Threshold | Rate |
|---|---|
| First €12,012 | 0.5% |
| Next €13,748 | 2% |
| Next €44,284 | 4% |
| Balance | 8% |
Standard USC rates for 2023
The 2024 rates saw a slight adjustment in threshold and amount from 2023. Here are the previous year’s rates:
| Threshold | Rate |
|---|---|
| First €12,012 | 0.5% |
| Next €10,908 | 2% |
| Next €47,124 | 4.5% |
| Balance | 8% |
Standard USC rates for 2022
Just for good measure, here were the rates in 2022. Again, there are slight differences in a few of the figures.
| Threshold | Rate |
|---|---|
| First €12,012 | 0.5% |
| Next €9,283 | 2% |
| Next €48,749 | 4.5% |
| Balance | 8% |
Find the rates for 2019-2021 here.
Reduced rate of USC
While most employees are required to pay the higher rates above, a relatively narrow class of employees are eligible for reduced USC rates. These lower rates are as follows:
0.5% on the first €12,012 (the same as the standard rate)
2% on the balance
The reduced rate applies to employees who earn less than €60,000 in a year, and:
Are 70 years or older; or
Hold a full Medical Card
The reduced rate will apply for any full year in which the above conditions are met.
Note: to receive this rate, the employee needs to contact Revenue Ireland directly.
Other USC rates
There are a few circumstances where the rate of USC is higher than standard. Again, these apply only to a relatively narrow set of employees.
Non-PAYE income above €100,000:a USC surcharge of 3% will be applied.
Bank bonuses: a 45% surcharge will be applied to bonuses above €20,000 for employees of specific banks that received government support. These are Allied Irish Bank, Anglo Irish Bank, Bank of Ireland, Educational Building Society, Irish Nationwide Building Society.
Property relief surcharge: A further 5% surcharge applies where income is above €100,000 and is sheltered by other property relief.
USC exemptions
While most employees Irish employees need to pay the USC, certain people may be excluded. If an employee does not fall under one of the conditions below, they must make USC contributions on their full income.
There are a few specific exemptions to the universal social charge:
Employees whose total income is less than €13,000 per year
Payments from the Department of Social Protection (DSP), including maternity and paternity benefits and state pensions.
Payments from organisations fulfilling similar roles to the DSP, such as the Community Employment Scheme, Fund for Students with Disabilities, Mobility Allowance, social welfare payments from overseas, and more
Early childcare supplements
Certain employer benefits, including the Cycle to Work scheme and travel passes
Scholarship payments
Income qualifying for child services relief and/or Rent-a-Room relief
Statutory redundancy payments
Pay Related Social Insurance (PRSI)
PRSI is essentially an alternative to USC for self-employed people. The individual must declare their self-employed status to Revenue, and will in most cases be liable to make Class S PRSI contributions.
Employees and self-employed people aged 66 or older do not pay PRSI charges on their income.
Class S PRSI rate
There are two possible PRSI rates to be aware of. Self-employed people must pay whichever is higher between:
4% of their income; or
€500
Taxable income for PRSI does not include some specific capital allowances.
Find more information about PRSI here.
Choose good tools to automate USC payments
As with all things admin in business, you must find ways to keep manual effort to a minimum. The end of the tax year is always stressful for companies, and you don’t want to discover that you’ve made basic errors or forgotten something so fundamental as the Universal Social Charge.
Spendesk isn’t a payroll tool. But we know just how powerful software like this can be.
So the advice for Irish companies is simple: put an HR automation software in place. As long as the right tax rates are set, you won’t have anything left to worry about. And employees won’t have to worry that their tax obligations are met, either.
Which keeps the team happy, and gives you more time to build the best business imaginable.
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