Some parents could end up paying as much as €2,490 more Income Tax per year.
In Budget 2014 it was announced that the One-Parent Family Tax Credit is to be replaced with a new Single Person Child Carer Tax Credit from 1st January 2014.
The new tax credit will be the same amount as the old one – but the important change is that it will be available only to the principal carer of the child.
Currently – if two parents live apart but have a child that stays in each of their houses some of the time – then both parents can claim the One-Parent Family Tax Credit . (The child only needs to stay for a minimum one night a year for a parent to qualify).
From January 2014 only one parent – who is deemed the “Primary Carer” will be able to get the new Single Person Child Carer Tax Credit . The default Primary Carer will be the one that gets the Child Benefit (usually that is the mother) – it will be up to the parents to tell Revenue if that is not the case.
This will probably be the cause of many disputes between parents – especially when they realise the potential financial consequences of not being the primary carer.
The One-Parent Famliy Tax Credit is currently €1,650. Anyone getting the One-Parent Family Tax Credit is also entitled to a standard rate cut-off band of €36,800. (Instead of €32,800.)
The overall result of the tax credit changes could mean that a parent deemed to be the ” non-principal carer” who was previously claiming the One-Parent Family Tax Credit will end up paying as much as €2,490 more Income Tax per year.
The goverment estimate that the overall increased income tax revenue because of this change will be €25 million a year.
The changes – whilst fairly big – will still mean that a dual income seperated couple will still pay less tax than a cohabiting couple earning the same.
Two separated earners (with children) earning €40k each with one of them getting the One Parent Family tax credit – will end up paying €9934 income tax.
A cohabiting couple with children will pay €12424 tax between them on the same wages.