Ireland Budget 2027: Income Tax, USC and PRSI Changes in Focus
by activpayroll team
Ireland's Budget 2027 preparations are underway, with the Department of Finance publishing the Tax Strategy Group (TSG) papers in July. While the papers do not set Government policy, they outline potential tax, USC, PRSI and social welfare measures being considered ahead of the Budget, highlighting areas that could affect employers, payroll teams and employees. For employers, the papers provide an early indication of areas that could affect payroll, employee pay and workforce costs.
What Could Change Under Budget 2027?
The TSG is an interdepartmental working group that prepares options papers on taxation and related issues ahead of the annual Budget. It is not a decision-making body and does not set tax policy or make recommendations to Government.
The Budget 2027 papers cover a range of potential measures across income tax, USC, PRSI and social welfare. Several proposals are particularly relevant to employers and payroll teams.
Income Tax and USC
The Income Tax paper reiterates the Programme for Government commitment to index tax credits and rate bands in line with wage growth, where the economy remains strong.
Options outlined for Budget 2027 include:
- Increasing the Personal, Employee/PAYE and Earned Income tax credits by amounts ranging between €50 and €100 per year
- Increasing standard rate cut-off points by amounts ranging between €1,000 and €2,000 per year
- Reducing the standard income tax rate from 20% to 19%
- Reducing the higher income tax rate from 40% to 39%
- Reducing each USC rate by 0.5%
- Increasing the USC Rate 2 threshold from €28,700 to €29,700
- Introducing automatic yearly increase of the standard rate tax bands and tax credits in line with inflation
The options have significantly different estimated costs to the Exchequer, so it is not yet known which measures, if any, will form part of the final Budget package.
Share-Based Pay Under Review
The Income Tax paper also highlights the growth of share-based remuneration in Ireland.
Share-based pay increased from €2.8 billion in 2023 to €3.3 billion in 2024, an increase of 20%. The employer PRSI exemption associated with share-based remuneration cost the Exchequer €369 million in 2024.
The TSG paper identifies this area for review. Any future changes could be relevant to employers using share-based remuneration as part of their reward strategy, particularly multinational organisations managing equity arrangements alongside payroll across multiple jurisdictions.
What Could Change for PRSI?
The Social Welfare Options paper sets out a number of potential PRSI changes, in addition to rate increases already scheduled through to 1 October 2028.
Options include:
- Increasing the entry threshold for PRSI Class A from €38 to €112 per week, with a graduated employee PRSI rate applying to earnings between €112 and €424 per week
- Standardising employer PRSI at a single rate of 11.25%, compared with the existing structure of 9% for weekly earnings up to €552 and 11.25% above that threshold
- Increasing the minimum annual Class S contribution for self-employed contributors from €650 to €900
For employers, changes to PRSI thresholds or rates could directly affect employment costs and payroll calculations. Payroll teams may also need to consider how any confirmed changes interact with existing payroll configurations and processes.
Social Welfare Options
The Social Welfare Options paper also considers potential changes to welfare payments and the longer-term sustainability of the Social Insurance Fund.
The paper examines the indexation of core welfare payments to inflation, alongside illustrative increases to weekly payments in 2027.
It also explores:
- A Pay-Related Parent's Benefit, potentially funded through a further dedicated PRSI increase
- A possible voluntary Illness Benefit extension for self-employed workers through Class P
- Further changes to welfare payments and contribution structures
Although these measures primarily concern social welfare provision, changes to PRSI funding and statutory benefits could have wider implications for employers, employees and payroll administration.
What Does This Mean for Employers?
The TSG papers outline options for consideration rather than confirmed changes. Employers should therefore continue to monitor the Budget process before making changes to payroll systems or processes.
Organisations operating in Ireland should consider:
- Monitoring the Budget process and confirmed tax, USC and PRSI measures
- Assessing the potential impact on employee net pay and employer costs
- Reviewing payroll systems and processes ahead of any changes to rates, thresholds or tax credits
- Factoring potential PRSI changes into 2027 workforce cost planning
- Reviewing share-based remuneration arrangements in light of the Government's focus on this area
- Ensuring payroll, HR, finance and reward teams are aligned on potential changes
- Considering how Irish changes fit within wider payroll and workforce processes for multinational employees
For multinational organisations, any confirmed changes should also be considered alongside tax, payroll and employment requirements in other jurisdictions, particularly where employees work across borders or remuneration arrangements span multiple countries.
Ireland – Global Insights
For further detailed guidance on payroll, employment law and compliance requirements in Ireland, visit our Ireland Global Insights page on the activpayroll website.
Next Steps
The publication of the Budget 2027 Tax Strategy Group papers gives employers an early indication of potential changes to income tax, USC, PRSI and social welfare. Organisations should continue to monitor developments and assess the potential impact on payroll; employee pay and employer costs as the Budget process progresses.
For more information on how these potential changes may impact your business, please get in touch. Complete our Contact Us form and a member of our expert team will be happy to assist with your queries