Ten most frequently asked questions about Tax Credits
Q. What is the difference between a tax credit and a tax deduction?
A. A tax credit comes off your tax bill where as a tax deduction comes off your income before calculating your tax bill. If you pay tax at the 41% rate a tax deduction is more valuable than a tax credit.
Q. What is a personal tax credit?
A. Everybody gets a minimum tax credit which reduces your tax bill. A single person’s tax credit is €1,650 for tax year 2011 which means you can earn up to €8,250 free of income tax for the year
Q. Do married couples get a higher personal tax credit?
A. Yes for married couples the personal credit is €3,300 (double the single persons tax credit) for the 2011 tax year
Q. What are the conditions for claiming a one-parent family tax credit?
A. The credit is available where a dependent child resides with a parent for all or part of a year and that parent is not co-habiting with another person. This credit is also worth €1,650 for the year 2011 which gives a single parent the tax credit that a married couple would get. It’s also possible for a separated couple to both claim the extra one parent family tax credit if the dependent children reside with both parents at any stage during the tax year.
Q. What is a widowed person’s tax credit?
A. A widowed person whose spouse has died in a given tax year is entitled to the widowed person’s ‘bereaved in year’ tax credit ( €3,300 for the 2011 tax year) for that year only. This only applies provided the survivor is not already receiving the married persons tax credit for the same year. Thereafter the yearly tax credit depends on whether or not the widowed person has dependent children.
Q. What is a widowed parent’s tax credit where
there are dependent children and for how long do I receive it?
A. A widowed parent’s tax credit of €3,300 for the 2011 tax year is given plus the following additional tax credit for the five years after the year of bereavement: €3,600 in the first year after bereavement €3,150 in the second year after bereavement €2,700 in the third year after bereavement €2,250 in the fourth year after bereavement €1,800 in the fifth year after bereavement
Q. What is a widowed parent’s tax credit where there are no dependent children?
A. If there are no dependent children the yearly tax credit for tax year 2011 is €2,190.
Q. What is a PAYE credit?
A PAYE credit is a special tax credit that employees are entitled to. The credit is €1,650 the same as a single persons tax credit. This means a single person in paye employment can earn up to €16,500 free of income tax per annum.
Q. Do self-employed people qualify for the PAYE credit?
A. No, self-employed people do not qualify for the PAYE credit unless they have PAYE income.
Q. If a person is employed by their spouse, is that person entitled to the PAYE credit?
A. This is what you pay yourself out of the business. You do not pay tax on Drawings but have to tell the Revenue how much they are so that the Revenue can see you have enough drawings to live on.