Maternity Leave Tax Credits Plan

Hi,

My wife will be going on maternity leave in early 2011 and I’m trying to determine the best way to manage our taxes and budget while is off work. Her employer does not top-up the State Benefit while she is out. I work as a full-time PAYE employee (paid monthly) as well and we are assessed jointly.

For example – say she makes €500 gross /week and will work 8 weeks (earning €4,000 gross with €800 in tax @ 20% deducted) when she finishes up. She will begin the year with her normal complement of tax credits (Married – split evenly €1,830 & Employee €1,830).

1) I want to confirm that if I take her share of the married tax credit during the year – she will be due back €1,030 (Employee Credit €1,830 less €800 tax deducted) from Revenue after 2011 ends.

2) If I take her married tax credit as suggested above effective in July 2011 – will my net pay rise by €305/month (€1,830 / 6 mths) or will it be prorated for the time passed already during the year (€1,830 / 12 mths) = € 152.50 / month for the final 6 months of 2011 with the remaining amount be due back by Revenue refund? Note: I pay enough tax (even at the lower rate) to absorb the higher credit calculated per month above.

Many thanks!!

She can only get back €800 if that is the tax she has paid. You cannot get back more tax than you have actually paid.

If you pay tax at the high rate then you should

1. Take €9,000 of your wife's 20% band (€9,000 is the max transferrable), leaving her with a 20% band of €27,400 for the remaining 6 months of the year. This transfer is worth €157.50 per month (€9,000 x 21% x 1/12 mths)

If you only pay tax at the low rate then there is no benefit in this transfer at all

2. Take her marriage tax credit of €1,830. This is worth €152.50 per month (€1,830 x 1/12 mths)

You should really leave things as above for the remainder of 2011 even when your wife goes back to work. If you transfer your tax credits & cut-off back to your wife when she goes back to work then you will end up with a large tax bill in July while your wife won't see the benefit of the unused credits etc in one lump sum but it will be spread over the last 6 months of the year.

Obviously this advice could be rendered meaningless depending on what's in the budget

I agree...with the upcoming budget its hard to make solid plans at all...I just want to have some sort of strategy for next year as things will be bad enough without us trying to go on one salary for X amount of time.

Just so I understand clearly - her portion of Employee credit if not covered by deductions while she is working will be completely lost (no possibility of Revenue credit after 2011 ends)?

We are in the lower tax bracket and she hopes not to return to work until sometime in 2012 also.

Your wife's PAYE (Employee) credit of €1,830 is not-transferrable to you so unless she has some earnings in 2011 then this credit is lost. If she is taxed at the low rate then she would only need employment income of €9,150 to utilise this €1,830 tax credit fully.

If, as you state, she doesn't intend to go back to work until 2012 then you should be entitled to a home carers tax credit of €900. This is granted where the income of the stay-at-home carer has income of less than €5,080 in any tax year. It is pro-rated where their income is between €5,081 and €6,880

Whoa...thanks for the advice RE: home carer's credit - that never would have occured to me and I will look into it as she won't even come near the amount needed to use the entire Employee credit!!!! I'm delighted now - thanks for your help DB!