ONE of the major changes expected in the budget, and flagged extensively in recent weeks, is the abolition of the PRSI ceiling for employees.
It's worth looking at the impact of such a change on take-home pay. The ceiling, currently €50,700, caps the amount of an employee's income liable to PRSI at 4%. Income up to this point is also subject to a further 2% levy.
Income above €50,700 is only liable to the 2% levy (or a 2.5% levy above €110,000). If the ceiling is abolished, all income would be liable to both PRSI and the levy.
An abolition of the cap would have a potentially significant adverse impact on higher-income employees. Even without any other taxation changes, this is the impact it will have on three different income brackets:
Mr Regular (€50,000 salary)
All of Mr Regular's income is currently under the PRSI ceiling, so he is paying a total of 6% PRSI and levies in 2008. After taking account of the weekly PRSI exemption, his 2008 PRSI/levies liability is €2,735. The abolition of the ceiling will have no impact on his PRSI/levies liability in 2009 (assuming no change to the weekly exemption or rates).
Ms Up-and-Coming (€80,000 salary)
A portion of Ms Up-and-Coming's income is currently over the PRSI ceiling, so that not all of her income is subject to PRSI in 2008. After taking account of the weekly PRSI exemption, her 2008 PRSI/levies liability is €3,460. Should the ceiling be abolished in 2009, Ms Up-and-Coming will be worse off by €1,172 per annum.
Mr Made-It (€175,000 salary)
A significant portion of Mr Made-It's income would not be liable to PRSI in 2008. After taking account of the weekly PRSI exemption, his 2008 PRSI/levies liability is €5,826. Should the ceiling be abolished, Mr Made-It will be worse off by €4,972 per
It is clear that the impact on take-home pay for higher income employees is significant. The variable is what the minister does with the PRSI rate itself. It is possible that he may reduce it slightly to provide some respite to higher income employees
suffering from the cap abolition, but it is just as likely that he will leave it unchanged.