Home carers tax credit can help to make ends meet

The credit has nearly doubled over the past four years, having been worth just €810 per year as recently as 2015. File Picture. 

Many couples with young children face interminable challenges of trying to balance generating income via two jobs against childcare costs and the difficulty of trying to find work that can flex with school and extra-curricular timetables.

The task is not easy, but one factor which does help and should be considered is the potential to claim the home carers tax credit.

The credit has become quite a valuable tax relief over the last number of years and, for those who qualify, the credit can knock as much as €1,600 off your income tax bill.

The credit has nearly doubled over the past four years, having been worth just €810 per year as recently as 2015.

The credit works by reducing the PAYE or income tax payable for a married couple, or a couple in a civil partnership who are jointly assessed, where one of the persons in that couple cares for a dependent person.

A dependent person is a child for whom Department of Employment Affairs and Social Protection Child Benefit is payable; a person aged 65 years or over; or a person who is permanently incapacitated by reason of mental or physical infirmity.

The dependent person must normally reside with the married couple/civil partners for the tax year, but exceptions apply, where the dependent person is a relative who lives next door, or on the same property, such as in a granny flat, or within 2km of the claimant.

You can only claim one home carers tax credit, regardless of the number of people you care for.

Unfortunately, you cannot claim this credit if the dependent person you are claiming for is your spouse or civil partner.

A typical example of a couple that qualify for the credit is a married couple where one spouse gives up paid employment for a number of years, staying at home to care for their young children.

In such instances, the remaining spouse can get the benefit of the home carers tax credit as well as a sharing of personal tax credits, and a partial sharing of the unused lower rate tax band.

Collectively, the combination of the tax credits and tax band can result in a tax saving of more than €5,000 in income tax/PAYE for a married one-income couple, where one spouse is a stay-at-home parent for their dependent children, compared to the level of income tax/PAYE that would be payable by a single person on the same level of income.

If, as a couple, you have no income tax liability, because your income is already covered by other tax credits, then the home carers credit will not result in any saving for you.

If the second spouse has some part-time income, or passive income such as rental income or dividend income, then the home carers credit can still be claimed, where that income doesn’t breach the de-minimis figure of €7,200 per year.

After this income limit, the credit tapers off, at a rate of 50% of the excess, until the credit is totally exhausted where income exceeds €10,400.

Generously, the rules disregard carer’s allowance income in determining whether a person exceeds the income thresholds.

These rules are further complicated by the fact that Revenue won’t allow the stay-at-home spouse claim their 20% income tax band, where the couple has two incomes, and the home carers credit is of more value to them.

To make it even more complicated, there is a look-back rule, which allows a person who for a particular year no longer qualifies for the credit to continue to claim the credit if their income has breached the €10,400 threshold but where all other conditions are satisfied where they qualified for the credit in the previous year.

The credit is claimed for previous year within the couple’s income tax return, if income tax registered, or via a Form 12 (PAYE employee type income tax return).

It is possible to make retrospective claims going back up to four years.

For PAYE workers, the credit can be added in during the year, where the employee completes and submits a home carers credit claim form.

As always, individuals should obtain professional advice relevant to their own particular circumstances.

Chartered tax adviser Kieran Coughlan, Belgooly, Co Cork.

(www.coughlanaccounting.com)