Workers will see a number of changes to their take-home pay in January as many of the announcements made in October's Budget come into force.

There will be a welcome across the board reduction in the USC while there's further good news on the way for cash strapped workers as the threshold for the higher rate of tax has also been increased.

But there will be some financial pain in September when workers who don't have a private pension will be signed up for the Automatic Enrolment Retirement Savings Scheme which will see a reduction in their take home pay.

Below is a summary of some of the major changes to tax bands and tax credits workers and employers will see from next month.

Universal Social Charge:

From January 1st 2025 the minimum wage will rise to €13.50 per hour combined with an increase to the upper band of the second rate of USC (2%) to ensure that workers on the new minimum wage do not see the benefit eroded by higher rates of USC.

The new upper limit will be €27,382, an increase of €1,622.

There will also be a reduction from 4% to 3% in the USC rate levied on income up to €70,044.

Income Tax Bands

The point at which the higher rate of income tax applies will increase by €2,000 for all earners from January 2025.

For example, the income tax standard rate band cut-off point for single individuals will increase to €44,000 with commensurate increases for married couples/civil partners. 

The rate band increases amount to a 4.5% increase which is greater than the growth of 1.7% in the consumer price index in the year to 31 August 2024. .

KPMG say the increase should deliver an annual saving of €400 for a single person earning more than €44,000 per annum and up to €800 for married couples/civil partners. 

Tax Credit

Minister Jack Chambers also announced a further €125 increase in the personal tax credit, the employee tax credit and the earned income credit, from €1,875 to €2,000- an increase of 6.6%.

Pension Changes

The Automatic Enrolment Retirement Savings Scheme (AE) has been pushed back till September 30th 2025.

Employees who do not have an occupational pension are automatically enrolled into a retirement savings scheme. It is aimed at addressing the low rates of private pension cover in Ireland.

For every €3 that an employee puts in, the employer will also put in €3 and the State will top up by €1. This means that for every €3 contributed by the employee, €7 will be put into the employee’s account.

Some key things to note about the scheme include:

• There will be no tax relief for employee contributions to the AE scheme (as the State is making direct contributions).
• Employers will receive tax relief for their contributions.
• Growth in the AE funds will be exempt from tax.
• Retirees will be taxable on the annuities payable from the AE funds.

• It will be possible to take a lump sum of up to 25% of the fund – this will be tax free up to €200,000, with rates of 20% applying on the next €300,000 and 40% thereafter.