Jill Kerby

 Wifes pension payout depends on tax position

EO’D writes from Dublin: I will qualify for a contributory pension, but if my wife does not qualify for a contributory pension  -  she may not have enough contributions - can I claim her as a dependant? 

She has recently started part time childminding. To qualify for a contributory pension, what would she need to do, if she registered as a sole trader, and did annual returns would this qualify her? If the family she works for were to tax her, would they need to register as an employer, how would that work.

We want to be above board, but the money is small - approximately €200 per week - and we are wondering is the whole thing worth-while.

Without knowing the details of your wife’s social insurance contribution record or her age, it is impossible to tell if she will qualify for a contributory or part-contributory old age pension when she reaches retirement age. 

If she does not qualify, then you will be able to claim the Qualified Adult allowance for her which, for qualified transition/contributory pensioners is currently worth an additional €153.50 a week to the qualified adult on top of the pensioner’s own €230.30 payment. This €383.80 total weekly payment rises to €436.60 if the qualified adult dependent is over 66.

There are slightly different rules that pertain to the transition year pension at age 65 and the state contributory pension. To qualify in her own name for the latter, that is, if she reaches retirement age on or after 6 April 2012, your wife would need to become insured before age 56, have paid at least 520 full rate employment contributions or make up the balance with high rate voluntary contributions provided she has previously paid at least 260 full-rate employment contributions.

She must also have paid a yearly average of at least 48 paid or credited from 1979 to the end of the tax year before she reaches 66 or a yearly average of at least 10 full-rate or credited contributions from 1953 (or the time she started insurable employment if later to the end of the tax year when she turns 66. (This year average of 10 may qualify her for a minimum contributory pension.)

If your wife earns €200 every week, exclusively from a single family, it may not be appropriate for her to register as a sole trader. The Revenue can certainly advise her and her prospective employer about whether she is a direct employee or a self-employed service provider.

As an employee earning less than €352 gross a week, she would be exempt from PRSI but her employer would pay an 8.5% contribution. As a sole trader, earning up to €500 a week she will pay 4% PRSI contributions on all her income. In both cases she will have to pay the universal social charge but now that the earnings cut-off amount has increased to €10,036, she will only pay 4% USC on the €364 balance of her annual earnings or just €15.

Aside from your wife’s PRSI position, you should also check out how her earnings might affect your current tax position. Most couples are jointly assessed for tax and this could push you into a higher tax bracket, affect means tested social welfare benefits, or, on the plus side if your earnings are sufficiently high, even reduce your total tax liability by allowing you to enjoy the higher income tax band and rates that apply to married couples with both partners working.

Finally, opting out of the income tax system is not discretionary. If your wife takes this job, she has to pay her tax and other liabilities, as does her employer. The Department of Social Protection website provides downloads on PRSI at www.welfare.ie.  A good tax advisor or accountant can advise all of you about your tax and PRSI obligations, whichever way her new job is arranged.

BO’S writes from Dublin:  Every year I claim a refund for medical expenses from the revenue. Last year, in 2011 I received 20% back on my 2010 medical expenses. I submitted a medical expenses claims for last year, 2011 and to my astonishment Revenue said I have an under payment of €1,658 for 2011 and as such they will reduce my credits by €844 for 2013 and the same again for 2014.
 
I did nothing wrong and cannot see for the life of me how I could have an underpayment of this amount. Every year up until now I have always received money back for medical expenses etc. They are the one's that made this mistake and I cannot financially afford to pay them back this amount in two years as my wife is job sharing next year and money will be tight enough. Plus, I availed of the 'cycle to work scheme' last year for the full amount€1,000 and as such entitled to a tax credit for this.
 
Surely someone in the Revenue has made a big mistake.

Mistakes happen,  TAB Taxation Services advisor Sandra Gannon has suggested that if the claw back of the €1,658 in your 2011 tax bill is correct, it is because the Revenue have discovered some discrepancy in your income tax position and the tax band and credits you are entitled to. Your medical expenses claim is what prompted the wider review.

You need to get a full explanation for this underpayment notice and how many years for which it pertains. Your inspector of taxes at your local tax office or an independent tax advisor will be able to provide this.

If the €1,658 is correct, and it is to be repaid in two equal amounts of €844 in 2013 and 2014, you should also find out how it is repaid so you can budget accordingly. It is possible that €70 will it be deducted every month, directly from your salary for the two years.

MS writes from Dublin:  Is it necessary to claim a deduction for losses against a capital gain liability at the first opportunity or can a loss claim be carried forward to future years.

I have a capital gains tax bill to pay for 2011 and will also have one for 2012. I have a capital loss for 2011. Would it be best for me not to claim the 2011 loss for 2011 but leave it for 2012 when the CGT rate will be 30% as opposed to 25% for 2011.

Unfortunately you can’t choose when to pay the tax you owe on a gain.

If you made a gain from the sale or transfer of an asset between January and the end of November, you are obliged to pay your CGT (less your personal CGT allowance of €1,270) by December 15thof that year.  Any gain you earned in December has to be paid by the next January 31st.

The CGT rate for any gains you made between January and the 6thof December 2011 was 25%; after December 6th2011 the rate increased to 30%.

However, capital gain losses can only be offset against another CGT gain which occurs in the same year as the CGT loss, or they can be carried forward and used against any future capital gain.