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Is the "PAYE Tax Credit" at the standard rate?

  • 02-05-2010 8:24pm
    #1
    podge3
    Registered Users, Registered Users 2 Posts: 1,743 ✭✭✭


    I thought I understood our system of tax credits but I'm completely confused after receiving my 2009 Balancing Statement.

    I work full time and earn about €50k. My wife doesn't work outside the home but for the past few years has worked for a few weeks per year and last year (2009) earned €1600. She claims the Home Carers tax credit.

    Up to 2009, the PAYE Tax Credit (€1830) covered my wife's small earnings and she paid no tax. But in 2009, she was only allowed €320 for this credit. I rang Revenue and was told that this credit is only available at the standard rate so 20% of €1600 is €320. To get the full €1830 credit she would need to earn €9150.

    I have all the standard rate tax band allowance so my wife is being taxed @ 41%. The PAYE tax credit covered this up to last year.

    Are Revenue correct that this allowance is only allowed @ 20%?


Comments

  • #2
    Legend100
    Registered Users, Registered Users 2 Posts: 736 ✭✭✭Legend100


    Because the credit is not transferable between spouses, this is why it is standard rated and the Revenue are correct, since your spouse does not have income to cover the full credit, she does not get the full credit.

    Even if she was given the full credit, it would have the same effect as you could not take it so this is why it is restricted


  • #3
    MazG
    Closed Accounts Posts: 237 ✭✭MazG


    As I read it, because the PAYE credit is not transferrable between spouses, you will have to transfer €1600 of the standard rate band back to your wife so that she will not have to pay tax (as her PAYE credit will more than cover this). I believe that you can then apply for an increase in your standard rate band equal to your wife's earnings (up to a limit of €27,400) as you would be the 'assessable spouse' as the higher earner.

    http://www.revenue.ie/en/tax/it/leaflets/it1.html#section2

    I think the problem here is not with the PAYE credit, but with how you have allocated your standard rate band.


  • #4
    Red Oak Tax Refunds: John
    Closed Accounts Posts: 16 ✭Red Oak Tax Refunds: John


    That's a very tricky one Podge, but you will probably find that your wifes income is being taxed correctly at 41%.
    This is because you are claiming the home carers tax credit - you will get the home carers tax credit if your wifes income is below ~ €5,000, but for you to benefit from the additional standard rate tax bands, any income your wife earns is taxes at the higher rate.


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