Tax implications of spouse giving up job?

My spouse's company are currently offering volunatary redundancy. My wife is considering taking up this offer to stay at home and mind the kids.

My current salary is currently circa €58,000. At the moment we can jointly earn upto €65600 before we pay tax at the higher rate. However if my spouse stays at home I can only earn upto €41800 before the higher rate of tax kicks in which is a significant financial penalty from out current situtation.

If my spouse stays at home and decides to earn additional income i.e. approximately €10000 by minding children in the home, would that mean that we could continue to jointly earn upto €65600 before having to pay tax at the higher rate?

If your wife stays at home she can pass all her tax credits to you to offset against your tax liability this should keep you in the same position i think.

I am not sure about that. If she earns nothing I can definitely only earn €41800 before paying at the higher rate.

I find the easiest way to look at is this:

As single individuals you are each entitled to earn 32,800 before you hit the 41% rate.

Therefore as a married couple this equates to 65,600.

The benfit for married couples is that up to 9,000 of this Standard Rate Band can be transferred between the spouses. So one spouse can earn up to 41,800 before hitting the 41% rate, but this means that the other spouse will hit the 41% rate if they earn more than 23,800 (i.e. 41,800 + 23,800 is still 65,600).

You will be able to get her tax credit of 1650 added to yours. If she does not work at all you would be able to get the Home Carers Tax Credit

Home Carer's Tax Credit

A tax credit at the standard rate of tax (20%) in the tax years 2011 and 2012 is available for Married Couples or Civil Partners where:

• One Spouse or Civil Partner (the 'home carer') works in the home caring for one or more dependent persons, i.e. a child for whom they are entitled to child benefit from the Department of Social Protection, a person aged 65 or over, or a person who is permanently incapacitated by reason of mental or physical infirmity and the qualifying person normally resides with the couple for the year.
• The home carer’s income is not in excess of €5,080. A reduced tax credit applies where the income is between €5,080 and €6,700 in the years 2011 and 2012.

The tax credit is not available to Married Couples or Civil Partners that are taxed as single persons. Neither is the tax credit available to Married Couples or Civil Partners with combined incomes over €41,800 in the tax years 2011 and 2012 and who claim the increased standard rate tax band for dual income Couples. For more information and also to claim the relief due complete the application form in Leaflet IT 66 - Home Carer's Tax Credit and send it to your local Revenue office. Alternatively, you can telephone your Regional LoCall number (see Further Information) with details of your claim.


IF SHE WORKS at childcare and earns above 5k..

Also Childcare earnings up to 15k are not taxable though it does not mention 2012
Childcare Services

Childcare Services relief is a scheme of tax relief for income arising from the provision of certain childcare services. When the gross annual income from the provision of childcare services does not exceed €15,000 in 2010 or 2011 the income is exempt from tax. The childcare service must be provided in the carer's home, not the children's home and no more than 3 children may be cared for at any time

This is on Revenue website. Unfortunately the figures relate to 2010 so would need some adjustment

http://www.revenue.ie/en/personal/faqs/how-do-i-work-out-my-tax.html#section5
Example 2

David is a PAYE employee. He is married and his wife is not employed outside the home. He is entitled to the following tax credits and standard rate cut-off point in 2010:
David's tax credits
Tax CreditsMarried Person's Tax Credit3,660
Employee (PAYE) Tax Credit1,830
Home Carer tax Credit900
Service Charges80
Trade Union Subscriptions70 Per year
6,540 per year (125.77 per week)Standard Rate Cut-Off Point45,400 per year (873.08 per week)

A Tax Credit Certificate showing these tax credits and standard rate cut-off point, issued to David. His employer received notification of the total amounts.
David earns €750 per week. His weekly figure of tax is calculated as follows:

David's weekly taxStepTaxable Pay €750
1Tax @ 20%€750€150.00Apply standard rate 20% up to a maximum of the standard rate cut-off point (€873.08) as advised by Revenue in the tax credit certificate
2Tax @ 41%NilNilAs David's weekly earnings (€750) are below his weekly standard rate cut-off point (€873.08), he will not pay tax at the higher rate of 41% this week
3Gross Tax€150.00Add the figure of tax due at standard rate to the figure of tax due at the higher rate (if any)
4Less Tax Credit(€125.77)Tax credit advised by Revenue in the Tax Credit Certificate Net tax payable by David this week€24.23Gross tax less tax credits.