Section 3 of Finance Act 2015 introduces a new tax credit called the “earned income tax credit”. The credit will be available to those with qualifying earned income who are not entitled to an employee tax credit of €1,650, i.e. self-employed individuals.
The earned income tax credit will be introduced from 1 January 2016. For 2016 it will be the lower of 20% of the qualifying earned income or €550. If the individual is also entitled to a partial employee tax credit, the aggregate employee tax credit and earned income tax credit is limited to €1,650.
This credit is seen as the first step in rebalancing the tax disparity between employees and self-employed taxpayers. However €550 is only one-third of the €1,650 PAYE credit available to those in employment. It is hoped that the earned income tax credit will be increased over the short to medium term to further address the imbalance.
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