In the current economic climate it would seem obvious that everyone would claim all tax credits and reliefs available to them. However it is our experience that a large number of taxpayers are not doing this due to a lack of time or a lack of awareness. In this regard we have outlined below the most common tax credits/reliefs which can be claimed and any requirements which must be met.
Tax credits are those items which can be found on the annual Notice of Determination of Tax Credits and Standard Rate Cut-Off Point issued by the Revenue Commissioners. There are many tax credits which can be claimed depending on personal circumstances. Tax credits are non refundable however any unused credits from one month/week can be carried forward to subsequent pay periods within the tax year. Whilst it is not possible to list every available tax credit the most commonly claimed are as follows.
Personal tax credit
This is granted to all taxpayers and is determined by reference to married status. The rates for 2010 are as follows:
Married couple – jointly assessed €3,660
Single person €1,830
One parent family allowance (additional) €1,830
Widowed person – year of bereavement €3,660
Employee tax credit
Any individual in receipt of emoluments subject to income tax under Schedule E is entitled to claim this credit. The one exception is that neither proprietary directors nor their spouses are entitled to this credit. For the 2010 tax year this credit is €1,830
Age tax credit
This credit is available where an individual or their spouse reaches age 65 in a year of assessment. The rates for 2010 are €650 for a married person jointly assessed and €325 for a single person.
An individual who pays service charges in full and on time may claim relief at the standard rate in respect of those charges. The credit applies for charges paid in the preceding tax year. The tax relief available is subject to an overall ceiling of €400 per annum. This relief is due to cease with effect from the 2011 tax year.
Dependent relative credit
This credit can be claimed by any individual who maintains a relative at his/her own expense. In order to qualify the claimant must prove that the relative is:
• incapacitated by old age or infirmity from maintaining themselves, or
• a widowed mother/mother in law, widowed father/father in law, or
• a son or daughter who resides with them and on whose services they must depend due to old age or infirmity
Additionally if the income of the dependant relative exceeds a specified limit (€13,837 for the 2010 tax year) no credit will be due. The credit for the 2010 tax year is €80.
Home carer’s credit
This can be claimed by a married couple who are jointly assessed where one spouse works at home caring for children, the aged or incapacitated persons. The amount of the credit for the 2010 tax year is €900 and in order to fully qualify the income of the carer spouse must not exceed €5,080. Where the carer spouse has income between €5,080 and €6,880 a reduced credit will apply. It should be noted that the home carer’s credit and the increased standard rate band are mutually exclusive however the taxpayer will be granted whichever is more beneficial.
Medical expenses may be claimed on a Form Med1 at the end of the tax year. With effect from 1 January 2009 medical expenses are allowable at the standard rate of tax with the exception of nursing home fees which are still allowable at the higher rate of tax. Most medical expenses will qualify for relief however expenses which have previously been claimed under a private health insurance policy will not be allowable.
Retirement Annuity Contracts (RAC)
Self employed individuals or employees who are in non pensionable employment may make contributions to an RAC during a tax year. Relief is then available on those premiums subject to the normal funding limits. Relief for contributions to an RAC are allowable at the higher rate of tax.
Personal retirement savings accounts (PRSA) contributions
Contributions to a PRSA are allowable for tax relief at the individual’s marginal rate of tax. The tax relief is given either through the payroll (net-pay arrangement) where the PRSA is an employer sponsored scheme, or by way of reclaim after the tax year through the filing of a personal tax return. The contributions must be within the maximum funding limits set down by Revenue in order to qualify for full relief.
In addition to the tax relief available, employees may also be entitled to relief from PRSI and levies on PRSA contributions. In the case of a net-pay arrangement the relief from PRSI and levies will be operated by the employer but otherwise a reclaim must be made by the individual to the Department of Social & Family Affairs after the end of the tax year.
Third level fees
Individuals may be entitled to claim relief for fees paid to third level colleges on their own behalf or on behalf of another individual. In order to qualify the course must be an approved course in an approved college and must be of a specified duration. Relief is given per course however there are maximum limits imposed depending on the particular course ranging from €315 to €5,000 per annum. Relief is available at the standard rate of tax.
Self employed taxpayers who make donations to eligible charities can claim a deduction on their personal tax return in respect of this amount. In order to qualify for tax relief the donation must meet certain conditions imposed by the Revenue. These conditions can be summarised as follows:
• The minimum qualifying donation is €250.
• The donation must not be repayable.
• Neither the donor, nor any connected person, can benefit from the donation, either directly or indirectly.
• The donation is not otherwise tax deductible.
• In the case of an individual, the person must be resident in the State in the year the donation is made.
The above is just a sample of the reliefs and credits which may be claimed by taxpayers. Each person will be different as the reliefs and credits are dependant on each person’s particular circumstances. If you would like more information on any of the above please do not hesitate to contact us.