Question of Money - January 29, 2012

Posted by Jill Kerby on January 29 2012 @ 09:00

Taxing issue of my wife's adult dependant payment


CC writes from Dublin: I receive the Contributory Old Age Pension. I also receive the increase for a Qualified Adult (my wife).

On 15/03/2008 in Document SW118, the Dept. of Social Protection stated as follows: "From 24th September 2007, by law we must pay the Increase for a Qualified Adult directly to the spouse or partner concerned unless the qualified adult wants to have someone else collect it for them". From this it appears that the Increase for the Qualified Adult forms part of the income for income tax purposes of the Qualified Adult (spouse or partner).

Can you confirm that this is correct? The answer to this question is important in calculating our Rate 1 Band (taxed at 20%) and, therefore, the amount of income tax we must pay. We are assessed jointly for income tax. 


The increased payment may be paid directly to your wife, but it is considered, for tax purposes, as the income of the Contributory Old Age pension recipient under their PPS number.

How your income tax is calculated is complicated and you have not furnished me with any figures, but I am going to assume that the reason you are asking this question is because you have received a letter from the Revenue suggesting that you have underpaid your income tax.

If there is an underpayment, it hasn’t been triggered by your €11,976 contributory payment plus your wife’s €10,728 which amounts to less than the €36,000 tax free income you can earn as a married, pensioner couple over age 66 but under age 80.

Instead, an underpayment may have occurred if your total income from all sources exceeds this tax free threshold any you were treating your wife’s payment as her own income under the tax individualisation rules for married couple.

Couples in which both partners are earners, enjoy a standard rate tax rate of 20% on income up to €65,600 with any balance subject to 41% tax. Income of up a maximum of €41,800 can be transferred between the working spouses, subject to the lower earning spouse declaring income of at least €23,800.

If, however you are a single income couple, as you appear to be, the first €41,800 of income will be taxable at the standard rate of 20% and any balance at 41%. If you have assumed in the past that your wife’s Qualified Adult payment of €10,728 allowed your joint income to be treated under the married couple, two earner tax band arrangement, you may have underpaid your taxes. 

I suggest you speak to a good independent tax advisor or your Revenue Inspector of Taxes to establish exactly your correct band and tax liability.

DO’C writes from Wexford: I am a 57, a married man and have been in receipt of a monthly payment from an income continuance scheme for ten years. This is paid by an insurer and is administered through my former employer. I am also in receipt of a social welfare invalidity pension including a payment for my wife.

My contribution rate for PRSI is class A1 but I have been advised by the wages clerk with my former employer that he thinks that I should be on class M. My understanding is that this would offer me a considerable saving but would this be in my interest or would it leave me at a disadvantage regarding my contributions towards the old age pension?

Also, is it possible to have part of my invalidity pension paid to my wife so that she would then be entitled to a PAYE tax credit?

I’ll answer your last question first. A spokesperson for the Department of Social Protection said that in exceptional cases, they have paid part of social welfare payments, to the recipient’s spouse, giving the example of a chronic alcoholic. The Department can also pay the invalidity pension allowance you receive for your wife to her directly, if you agree.

However, the current PAYE tax credit of €1,650 is only available to each spouse or partner in a marriage or civil partnership if both pay PAYE on their earnings. If your wife has no independent earned income – a portion of your pension is not her income, it is still yours - she is not entitled to the tax credit.

Class M is the PRSI band for occupational pension recipients who no longer make PRSI payments. The wages clerk is correct in saying that you would save money transferring to this band but if you want to ensure that you receive a state contributory pension at age 65, you may need to keep paying your PRSI contributions on the Class A1 band, depending on how many you have already accumulated.  You can check the number of contributions you will need on this latest DSP brochure:  http://www.welfare.ie/EN/Publications/SW14/sw14_jul11/Documents/sw14_jul11.pdf


KH writes from Dublin:  My wife and family will be emigrating to the US this summer. We have lump sum of €10,000 that we want to convert to dollars to secure the current interest rate (though with it climbing, it might be best to wait and see).
The problem we’re having is the best way to set this up. Should we just get cash (though I think we will be limited on the amount we can bring into the US) or a US bank draft or traveller’s cheques? (Are they even used anymore?) Would we need to declare it? Should we get a dollar bank account here, which would then have to be converted back into euro if we encashed it to bring it to the US, thus losing the benefit of the hedging? We can’t open a bank account on the other side until we get a US address.


The advent of electronic banking means that you can eliminate most of the transfer methods you’ve mentioned and their associated risks –like losing the bank draft or traveller’s cheque (the latter can be replaced at another cost), or carrying the cash safely through the airports and perhaps having to explain its presence to the nosy security or custom’s officials.

So first, open a US dollar account in your own bank and convert the €10,000 into dollars, locking in the favourable euro/dollar exchange rate, on whatever date you wish. There will be a currency exchange transaction cost but you may earn a little interest on your dollar account until you are ready to electronically transfer it to your new bank account in the States. NIB told me that the electronic transfer cost of the equivalent of €10,000 in dollars to a US dollar account would be just €10.

The transfer of a sum this size shouldn’t cause you any difficulties, the NIB official said, once you have satisfied your new bank’s money laundering terms and conditions and alert them to the date of the cash transfer.



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