Tax Credit Query

[bottle]

Hi,

This query has probably been asked over and over again, but I am struggling to find an answer. Apologies in advance.

My wife and I are jointly assessed, I am on approx €100k per annum and she is on approx €37k per annum. What is the most tax efficient way to split our combined tax credits?

I asked the revenue via revenue.ie and they responded as follows;

They assigned me the majority of the rate band i.e. €51k and my wife €37k and then split the credits equally.

Does this make sense and is it the most efficient allocation?

Thank you.

 

[cally1990]

Yes.

Since both of you can earn up to 44,000 taxed at the 20% rate, but your wife’s income is 37,000, she is not utilising the portion of her tax-free allowance between 37,000 and 44,000.

To optimise this, it makes sense to adjust her standard rate tax cut-off point from 44,000 down to 37,000 (since that 7,000 portion remains unused). By doing this, your own standard rate threshold would increase from 44,000 to 51,000.

This adjustment would save you 1,400 annually (or 116.67 monthly) in taxes.


Here’s why: 7,000 of your income, previously taxed at 40%, will now be taxed at 20%, resulting in a 20% saving on that amount (7,000 × 20% = 1,400).

There’s no need to adjust tax credits in this scenario, as the savings are achieved purely through reallocating the unused tax threshold.

I hope this clarifies the strategy!

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[bottle]

Thank you for the explanation, that makes sense.