# Deposit interest and income threshold



## Daddy (7 May 2012)

As one pays DIRT on deposit interest is deposit interest reckoned as part of your total income in determining whether one falls above or below the income threshold of 18k for a single person or 36 k for a married couple.  Thanks.


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## Gervan (7 May 2012)

Yes, the gross deposit income is part of your total income.

Some income is exempt, such as child benefit, and not included in determining whether you are under or over the threshold.


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## Daddy (7 May 2012)

Gervan. Thanks seems unfair that one pays DIRT on the gross yet the gross is what is deemed as income.


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## Dave Vanian (8 May 2012)

Just a thought - if your deposit interest is what's pushing you into the tax net, would it be possible to move some of your deposits into fixed-rate deposits so that you wouldn't actually receive any interest on them for a couple of years, until the end of the fixed rate?  It's been flagged that the income exemption threshold is to be reduced or even abolished over the next few years so after that, this issue is irrelevant.  

I'm not a tax guru, so wondering if this would be feasible?

On a related note, are you aware that if your income is only marginally over the threshold, you only pay tax on the excess, albeit at 40%?  So if your income is €36,100 for a married couple, you'd only pay €40 tax.


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## Daddy (8 May 2012)

Dave - thanks I did'nt realise that if I went a euro over 36k that it would be 41% tax.

So a pensioner couple earning over 36k pays tax at the top rate on all income.

Again, seems unfair that nothing is deemed taxable at the lower rate.


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## mandelbrot (8 May 2012)

Daddy said:


> Dave - thanks I did'nt realise that if I went a euro over 36k that it would be 41% tax.
> 
> So a pensioner couple earning over 36k pays tax at the top rate on all income.
> 
> Again, seems unfair that nothing is deemed taxable at the lower rate.


 
You're looking at that the wrong way Daddy. The EXCESS over 36k is taxable at 40% (not 41%), IF and only if, it is more beneficial than the normal method of using tax credits etc.

For example:
OAP Couple, Joint income 37k

Method 1:
Less Exemption: -36k
Taxable income: 1k
Tax (@ 40%) = €400.

Method 2:
Income 37k
All taxable @ 20% = 7,400
Less tax credits:
Married couple: -3,300
PAYE: -1,650
Age credit: -490
Tax payable: 1,960

So, in the above situation, the marginal relief treatment is more beneficial to the taxpayer and that is what will apply. 
It is also clear that a pensioner couple earning over 36k absolutely DOES NOT pay top rate tax on their income. €400 tax on 37k of income is about 1.1%.
I am a PAYE worker earning around that ballpark, and I am paying Tax, PRSI and USC of about 6k p.a. on my income, which is 16.5%.


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## Gervan (8 May 2012)

Mandelbrot, you point out that €400 tax on €37,000 income is only 1.1%. But if that €37,000 is solely deposit interest, the pensioner would be paying 30% tax.
€36,000 deposit interest, 0% tax.
In such a scenario Dave Vanian's suggestion to reschedule when interest is received is worth looking at.


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## mandelbrot (9 May 2012)

Gervan said:


> Mandelbrot, you point out that €400 tax on €37,000 income is only 1.1%. But if that €37,000 is solely deposit interest, the pensioner would be paying 30% tax.
> €36,000 deposit interest, 0% tax.
> In such a scenario Dave Vanian's suggestion to reschedule when interest is received is worth looking at.


 
I can't see that scenario being very common though, can you?! A couple with no pension income but enough deposit interest to push them into the tax net...


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