Jointly assessed versus single assessed – year of marriage credit


16 Nov 2010

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We all see news reports on celebrity marriages in the glossy magazines and the papers every few weeks. And with marriage usually comes quite a cost, too, what with the five-star hotel and seven-star honeymoon! However, marriage can also be quite tax efficient and a means to get some money back into both of your newly married pockets.

The easiest way to think about one’s tax status is to compare to it one’s relationship status in the "real world". Before an individual is married, they are assessed as a "single person" by Revenue, and the amount of tax credits that they receive and the amount of income they pay at the different rates of tax reflect this single status.

When a couple are treated as a married couple for tax purposes, they are now what is termed "jointly assessed" to tax as a couple. However, this is not something that automatically happens once you return from your three-week honeymoon! Revenue must be made aware of the change in your status.

Much like on the sporting field as shown in the recent Ryder Cup victory, two people combining together often achieves more than two people acting as single individuals. Depending on the level of a couple’s income, a couple jointly assessed can often pay less tax.

An amount of €27,400 to be taxed at the lower 20pc rate can be transferred between spouses. If you got married in 2009, then you will both remain singly assessed for 2009 with joint assessment beginning in 2010.

While this deals with your tax status in the following year, how can it be used effectively in the actual year you get married? Basically, if the amount of tax you paid in the year of marriage as two single individuals is greater than the amount that you would have paid if jointly assessed for the same period, then this difference can be claimed as a year of marriage credit.

This will only apply where one of the individuals has income in the region of €45,000, with the other having income in the region of €27,000, enabling nearly all of the couple’s income to be taxed at the lower 20pc rate. This might apply to your situation if one of you is only starting off in a new career or perhaps working part time.

An example is the easiest way to explain the above very valuable relief.

Example:

Brian and Amy got married on 1 April 2009. Both are self-employed individuals. Brian had total income of €45,400, while Amy had total income of €27,400.

As singly assessed individuals:

Brian will have €36,400 taxed at his 20pc rate;

The balance of €9,000 will be taxed at his marginal rate of 41pc (plus PRSI, levies and income levy).

Amy will have all of her income of €27,400 taxed at the 20pc rate. However, she was entitled to have up to €36,400 taxed at this rate, but as a single individual she cannot transfer this to Brian. Thereby, the €9,000 that Brian suffered tax at his highest rate could have been avoided as this could have been transferred by Amy if jointly assessed.

As married individuals:

Brian will have all of his income of €45,400 taxed at the standard rate of 20pc as he is now jointly assessed and can use this additional amount at the standard rate;

Amy will also have all of her €27,400 taxed at the standard rate.

The tax saving by being jointly assessed works out at €2,170.

Therefore, if Brian and Amy decide to review their 2009 tax year now, they will be entitled to a refund of ¾ of €2,170. This is because they were married on 1 April 2009 therefore entitled to be jointly assessed for ¾ of the tax year.

Friday 22nd October 2010, 8:55 am

By Simon Ball

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