Some of us (yours truly included!) have been accused in the past of putting remuneration before romance! As if!! Many of us may be planning on 'going down the aisle' in the coming years or have done so in recent years, this is for you! Why? There is little doubt that clarity around how this impacts on our taxes is not that easily got, until now of course!
What is the best way to manage my taxes in Marriage/Civil Partnership?
What is the impact of Civil Partnership/Marriage on my Taxes?
All answered here on Ireland's only dedicated Financial Planning resource for millennials!
This episode will aim to share with you the impact of marriage on your tax assessment, what that means in money terms, and what your options are to maximise any opportunities which arise (from a financial perspective obviously!). If you haven't already then do check out Blog #28 where we shared the basics of Income Tax......a lot of this episode will make zero sense if not!
Before we begin, if you are new here please do check out this section to find out why Informed Decisions exists and what we are doing for our generation.
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Footloose & Fancy-Free:
As a single, and by single we mean unmarried or not in civil partnership, (can anyone help discover what the opposite of 'civil partnership' is.....'un-civil partnership', hardly!?) we are assessed in Tax terms as 'single'. Singles are taxed on their own income, receive their own tax credits, pay their own tax and can complete their own tax return via revenue's MyAccount.
That's fairly straight-forward and logical, I earn an income and I pay my tax on that, as per Blog #28. If I have a boy/girlfriend then they are assessed on the same terms. In the eyes of the revenue you are separate individuals and assessed as such.
Impact of Marriage/Civil Partnership:
So when we get married we get lots more tax credits, our bands go shooting through the roof and we take home a huge chunk of extra cash?? Not quite! The benefit to be had in euro terms will be largely dependent on your circumstances & the income levels of each person. We will thrash out some figures shortly but there is another step which much be considered before we address that.
When you marry you should notify revenue, and select how you wish to be assessed for tax purposes. This will be the key step which potentially determines whether you gain or not from your new set up! If you are married a while now and as you read this you are thinking "....jeeny, did I do this after we got married??" it's OK, all will be fine! There's time.
- Assessed as a single person: Must be submitted in writing, as above each person assessed completely independently, with no transfer of credits or bands allowable between individuals. Not that common.
- Joint Assessment: While we have not been able to access stats on it this is likely the most common treatment as it is the one revenue will apply to you by default if you notify them of a marriage/partnership. Credits & Standard Rate Band can be allocate between the couple, to suit themselves and their circumstances.
- Separate Assessment: Credits and unused bands are typically divided up equally between the 2 parties. Revenue advise that the bottom line tax bill will be broadly the same as if take the Joint Assessment approach.
Which Is Best For Me?:
You may need to revert to an accountant and look into this in great detail, however many propose Joint Assessment as the most suitable option for the majority of circumstances. Why? Well it does allow the following:
- If only one spouse/partner is working and has taxable income, all tax credits and the standard rate band will be given to that individual ( a good thing!)
- If both spouses or civil partners have taxable income, they can split their tax credits and standard rate band to ensure they pay the right amount of tax and no more! This is done via Revenue MyAccount
Show Me The Money:
So what difference does marriage or civil partnership make to my take home pay?
Firstly, in the year of marriage you continue to be assessed as single individuals, it is only from the January of the following year that you are assessed on a joint or separate basis (provided you have informed revenue!). If you would have been better off financially to have been joint or separately assessed in the year of marriage you are entitled to claim a refund for the period of the year in which you were married. Consider it a little wedding present from Revenue!!
In time-honoured tradition let's take 2 examples to see how it impacts following the year of marriage, and for the many many more years of bliss that lie ahead! For this example let's assume that you earn €60k and your partner earns €24k per year Gross, both PAYE workers.
Scenario A is assessing you as Individuals:
Your Income & Tax Income 60,000 Standard rate band 33,800 x 20% = 6,760 Higher rate band 26,200 x 40% = 10,480 17,240 Tax Credits Personal tax credit 1,650 Employee tax credit 1,650 3,300 Your Tax Bill (17,240 - 3,300) = 13,940 Your Spouse/Civil Partner Income 24,000 Tax Band 24,000 x 20% = 4,800 Tax Credits Personal Tax Credit 1,650 Employee Tax Credit(1,650 x 2) 1,650 3,300 Spouse Tax Bill (4,800 - 3,300) = 1,500 Combined Tax Payable Self 13,940 Spouse or civil partner 1,500 Total Tax 15,440
So in above example we can see that the total bill between the 2 of you was €15,440 for the year. This is assuming you are assessed as individuals (i.e. you are not married/partners or you are married and the revenue doesn't know about it!).
So let's now see what happens when you do marry, or when you notify the revenue and they assess you under Joint Assessment. You will see that unlike above where the Standard Rate Band (amount of income on which you pay 20% tax) is 33,800 for an individual it increases for married/partners under Joint Assessment to 42,800. This has an impact, as do the Credits!
Your Income 60,000
Spouse/Partner Income 24,000
Total Income €84,000
Standard rate band (42,800 for married couples)
Self 42,800 x 20% = 8,560
Higher rate band 17,200 x 40% = 6,880
Spouse/Partner 24,000 x 20% = 4,800
Total Tax Bill= 20,240
Take Away Tax Credits!
Married or civil partners tax credit 3,300
Employee tax credit (1,650 x 2) 3,300
Net Total Tax Bill (20,240-6,600)= €13,640
Boom! So there is a benefit of almost €2,000 per annum that this couple would achieve, given their current circumstances if they just notify the Revenue of their circumstances! The amount you could gain will usually be greater if there is a difference between the 2 incomes, or indeed if there is only 1 income. So check it out!
If one was really looking clinically at it you could argue that we would be well placed to save this 'extra' money every month into a retirement savings or kids education fund each month, or indeed pay for a fabulous eternity ring in a few years time!!!
Oh, and if you are the reader who asked themselves above "....jeeny, did I do this after we got married??", you can go about claiming a refund if you are due it. Contact your local revenue office or use MyAccount as above.
Please share this with anyone who is planning to or who has recently got married, it could save them a small fortune, they might even buy you a drink on it!
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