Brendan Howlin (Wexford, Labour)
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Question 162: To ask the Minister for Finance the impact of individualisation on a married couple with one earner, a married couple with 2 earners and a separated couple where both are earning; the difference in allowance and credits for each of the years since the introduction of individualisation; and if he will make a statement on the matter. [3900/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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There is a difference in tax liability which arises from the different standard rate bands which apply to single individuals, married one-earner couples and married two-earner couples. For 2007, the maximum potential difference between a married one-earner couple and a married two-earner couple is €5,250 (€25,000 @ 21%).

To the extent that a difference in tax liability arises between a married one-earner couple and a married two-earner couple from the different bands which apply, it must be borne in mind that there are costs associated with earning an income, such as travel and childcare costs. Such costs are likely to be greater if two persons rather that one person work outside the home to earn the same gross income.

Married couples may still benefit from double personal tax credits. The married tax credit has the same value for couples whether they are one-earner or two-earner. The employee (PAYE) credit is only available to employees and not to others so it is not doubled up in the case of married one-earner couples. However, this has always been the position since the credit was introduced as an allowance in 1979. It should also be noted, however, that married one-earner couples, one of whom cares for a dependent person, e.g. a child of the couple, may benefit from entitlement to the home carer tax credit, currently €770 per annum, which is not available to married two-earner couples where the second earner has income in excess of €6,620 per annum.

In relation to separated spouses, such persons may receive different tax treatment depending on the nature of their post-separation arrangements. Where legally enforceable maintenance arrangements apply, the general position is that:

the spouse who pays the maintenance is entitled to a tax deduction for payments made for the benefit of the other spouse,

the maintenance payments are taxed in the hands of the receiving spouse,

the couple are treated for tax purposes as if unmarried.

In effect the maintenance payment is treated for tax purposes as if it was the income of the recipient and not the payer. However, a separated couple may (except where a civil annulment has been obtained) jointly elect to be treated for tax purposes as if the separation had not taken place (provided they are both resident in the State and, if divorced, neither have remarried). When such an election is made, then the maintenance payments are ignored for tax purposes. The payer does not receive a tax deduction for them and the receiving spouse is not taxable on them.

In the case of non-legally binding maintenance payments, such payments are not taxable in the hands of the receiving spouse and the paying spouse cannot claim a tax deduction for them. Accordingly, separated spouses may be treated for tax purposes as single persons or may continue to be treated as married in certain circumstances. Thus, individualised tax bands may or may not have relevance to a couple who have separated. Where they do have an impact, such impact is the same as would have applied before the separation occurred.