Understanding Tax in Ireland-Part 3: Taxation for Married Couples and Civil Partnerships in Ireland
Introduction:
For married couples or those in civil partnerships, the Irish tax system offers a different set of rules that can work in your favour, especially when one partner is retraining, considering a career change, or when both partners are juggling multiple jobs. The flexibility provided by joint assessments and tax credits can reduce the overall tax burden, making financial planning easier when life circumstances change.
Over the past few years, we’ve seen a growing number of couples where one partner chooses to reskill, move to a lower-paid profession, or start a business, while the other partner maintains the household’s primary income. This shift allows couples to make long-term career decisions without suffering the same financial strain as unmarried individuals. However, there are still important tax considerations for those in partnerships, especially if one or both partners are working multiple jobs.
Tax Benefits for Married Couples:
Married couples and civil partners in Ireland can choose between three main types of tax assessments:
- Joint Assessment (most common): The income of both partners is combined, and they share tax credits and rate bands. This often results in a lower overall tax bill.
- Separate Assessment: Each partner is taxed separately, but unused tax credits or rate bands can still be transferred between partners at the end of the year.
- Single Assessment: Each partner is taxed entirely on their own income, with no sharing of tax credits or bands.
In most cases, joint assessment is the most advantageous, especially if one partner earns significantly more than the other. Under this method, couples can combine their rate bands, allowing them to reduce the amount of income taxed at the higher rate.
Married Person’s Tax Credit:
For married couples or civil partners, an additional tax credit is available:
- Married Person’s Tax Credit: €3,550 (can be split between partners or used fully by one partner depending on income levels).
Income Tax and Joint Assessment Example:
Let’s look at a couple where one partner earns €45,000 and the other earns €25,000. If they choose joint assessment, their combined income is taxed as follows:
- Income Tax:
- First €84,000 (combined) is taxed at 20% = €16,800.
- Subtract tax credits (€3,550 + €3,550) = €9,700.
- Total income tax after credits = €16,800 – €9,700 = €7,100.
Because their combined income doesn’t exceed €84,000, they don’t enter the higher 40% tax bracket, which is a key advantage of joint assessment.
Universal Social Charge (USC) Breakdown:
USC is calculated individually for each partner, based on their own earnings.
For Partner 1 earning €45,000:
- First €12,012 taxed at 0.5% = €60.06
- Next €9,283 taxed at 2% = €185.66
- Remaining €23,705 taxed at 4.5% = €1,066.73
- Total USC = €60.06 + €185.66 + €1,066.73 = €1,312.45
For Partner 2 earning €25,000:
- First €12,012 taxed at 0.5% = €60.06
- Remaining €12,988 taxed at 2% = €259.76
- Total USC = €60.06 + €259.76 = €319.82
PRSI (Pay Related Social Insurance):
PRSI is also calculated individually, at 4% of each partner’s income.
- PRSI for Partner 1: 4% of €45,000 = €1,800
- PRSI for Partner 2: 4% of €25,000 = €1,000
Total Deductions and Net Income:
Total Income Tax for both partners = €7,100
Total USC for both partners = €1,312.45 + €319.82 = €1,632.27
Total PRSI for both partners = €1,800 + €1,000 = €2,800
Total Deductions = €7,100 + €1,632.27 + €2,800 = €11,532.27
Net Income for the couple = €70,000 – €11,532.27 = €58,467.73
By using joint assessment, the couple avoids paying the higher 40% tax rate on any of their income, keeping more of their combined salary compared to two single taxpayers in similar positions.
How Joint Assessment Helped a Couple During a Career Change:
“I recently worked with a couple where one partner was earning €60,000, and the other decided to leave their job to retrain as a teacher. During the retraining period, the second partner’s income dropped significantly to about €12,000 from part-time work. By using joint assessment, they were able to combine their tax bands, so the higher earner didn’t face the 40% tax rate, and they were able to retain more of their income while one partner was studying.”
This is a prime example of how married couples can use joint assessment to manage their finances when one partner is going through a career change or earning significantly less for a period of time.
Second Jobs for Married Couples:
If both partners in a married couple are working more than one job, it’s important to account for how additional income is taxed at higher rates. In some cases, depending on the household income, taking on a second job may push one partner into the higher tax bracket, resulting in more of the additional income being taxed at 40%.
For example, if Partner 1 from the earlier scenario takes on a second job that brings their total earnings to €55,000, the portion of their income above €42,000 will be taxed at 40%.
Example Calculation: Couple with Combined Income of €80,000 (Including Second Jobs)
Let’s say Partner 1 now earns €55,000, and Partner 2 earns €25,000. Their total household income is €80,000. Under joint assessment:
- Income Tax:
- First €84,000 taxed at 20% = €16,800.
- Subtract tax credits (€3,550 + €3,550) = €9,700.
- Total income tax after credits = €16,800 – €9,700 = €7,100.
Since their combined income still falls below €84,000, they avoid the 40% tax rate, even though one partner’s earnings have increased. This is a clear advantage of joint assessment for couples with multiple incomes.
Conclusion and Link to Additional Resources:
Joint assessment can be a powerful tool for married couples and civil partners, allowing them to manage their tax burden effectively, particularly when one partner is retraining or working fewer hours.
If you missed Part 2 of this series, we covered the challenges and tax implications faced by unmarried individuals. [Read Part 2 here].
For those working more than one job, or if you’re considering a career change, it’s essential to understand how Ireland’s tax system affects your take-home pay. Always consult with a tax advisor to ensure you’re making the most of available tax credits and allowances.
