Married - optimal use of tax credits

A

AnnDownes

Guest
I am a PAYE worker considering giving up my full time job to stay at home / do some part time work. Can I transfer all of my tax credits to my husband, thereby reducing his tax liability? (Both of us currently pay tax at the higher rate.) If I were to work part time what would be the implications? Is there a cut off which I should be aware of in terms of cost/benefit i.e.optimal utilization of tax credits? Thanks.
 
Hi Ann, welcome to AAM.

You can indeed transfer your credits to your husband, but if you stop working entirely, as a single-income family (with or without children), you will pay more in tax than do a married couple both of whom work outside the home. Do a search of this forum (or indeed www.revenue.ie) for the term 'individualisation' for further details.

If it's an option, it would be much more tax-efficient for you to remain in at least part-time employment. The precise 'optimal cut-off' will depend on your husband's and your own earnings (and of course your likely childcare expenses, if that's a factor — none of which are tax-refundable).
 
The basics are that the standard rate bands are €34k for single, €43k for married one income and €68k married 2 incomes.
So basically, out of your €34k, only €9k are transferrable.
Your personal credits are also transferrable, €1760. So your husband can avail of an extra €10760 credits from you not working. This is assuming you currently each use your own €34k at the moment, i.e. that you haven't already allocated the majority of the credits to him (or you).
Say you're both earning 40k. At the moment each pays 20% in tax on the first 34k and 41% on the rest, so each pays 6800 + 2460 = 9260. If you quit, he pays 20% of 40k = 8000. However if he currently earns 50k then he would have paid 6800 + 6560 = 13360 and now he pays 20% of 44760 (8952) + 41% of 5240 (2148) = 11100, i.e 2260 per annum less. So the exact figures depend on his current earnings. He'd also save on prsi and health levy.

What I don't know is what defines an income. I mean I assume that if you work one hour a week and earn €1000 per annum that that won't constitute married with 2 incomes thus giving you and extra €25k in credits. Perhaps someone else could explain this part?? And tell me if these figures are right??
 
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Just found the answer for the second income. The dual income band increases from €43k by the amount of the second salary until it reaches €68k. That means you can earn up to 25k and only pay 20% on this, but anything above €25k will be taxed at 41%.

And the 1760 credit you can transfer is not added to your cut off point but deducted after tax is calculated. So to revise the above calcs

Say you're both earning 40k. At the moment each pays 20% in tax on the first 34k and 41% on the rest, so each pays 6800 + 2460 = 9260. Then decuct paye allowance (1760) and personal credit(1760) and pay €5470. If you quit, he pays 20% of 40k (8000) - 1760 - 1760 - 1760 (your personal credit) so €2720, i.e. his take home goes up by approx €230 pm. However if he currently earns 50k then he would have paid 6800 + 6560 (13360) - 1760-1760 = 9840, and now he pays 20% of 43000 (8600) + 41% of 7000 (2870) = 11470 - 1760-1760-1760 = 6190, i.e 3650 per annum less, i.e. his take home goes up by approx €300 pm. So the exact figures depend on his current earnings. He'd also save on prsi and health levy.

Sorry about the mess up with the figures - pregnancy brain not working properly.
 
good spot gabe - he'd only save that with the personal allowance, not the cut off rate. As I said, I'm usually sharper than that, baby has a lot to answer for.
 
Trish,

Congrats on the pending arrival!
Thanks for the examples, they are helpful but I have one last question (hopefully). If my husband is earning €50k p.a., why can he only avail of €43k p.a. at 20%. If I stayed at home and did not work at all, can my husband not avail of the max of €68k p.a. which is the total allowance for us as a couple at 20%. What is the rationale behind Revenue not granting the full amount?
Thanks.
 
AnnDownes said:
If my husband is earning €50k p.a., why can he only avail of €43k p.a. at 20%. If I stayed at home and did not work at all, can my husband not avail of the max of €68k p.a. which is the total allowance for us as a couple at 20%.
Click to expand...
No.
What is the rationale behind Revenue not granting the full amount?
Click to expand...
In a word - .


 
In theory, it was introduced to encourage women back into the workforce - 'pay less tax if you both work'. In reality it just screws with couples who have more than 2 kids and can't afford the €2k in creche fees.
 
individualisation

Hi

I am recently married and only just getting around to educating myself on these issues.

On the topic of individualisation - it seems so anti family and unfair. The term itself is slightly misleading because the way it's been implemented is not just an individualisation of tax but a manipulation of the tax bands in such a way that a single income family can pay more tax than a double income one. How can this be? Has there not been some outcry against this? Surely it's wrong to penalise women who choose to stay at home?
 
The individualisation issue is covered at length in at least one other thread and probably more to boot.
 
Clubman

I know this I've just read through most of them and I understand now how it works. I haven't read any comments from people on whether they consider it to be a good thing or not, hence my post.

A
 
Why drag a thread on a specific query off topic into a more general discussion of the perceived rights and wrongs of the system?!
 
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