The position is that where a couple is cohabiting, rather than married or in a civil partnership, they are treated as separate and unconnected individuals for the purposes of income tax. Each partner is a separate entity for tax purposes and, therefore, cohabiting couples cannot file joint assessment tax returns or share their tax credits and tax bands in the same manner as married couples.
The basis for the current tax treatment of married couples derives from the Supreme Court decision in Murphy v. Attorney General (1980), which held that it was contrary to the Constitution for a married couple, both of whom are working, to pay more tax than two single people living together and having the same income.
However, a cohabiting couple where both partners are working get, in total, the same tax credits as a married couple or couple in a civil partnership (i.e. €3,300). In addition, the same amount of income is subject to tax at the 20% rate (currently €32,800 each). This equates to the €65,600 threshold in the case of a married couple or couple in a civil partnership.
However, married couples who have children can avail of the Home Carers Tax Credit worth €810 per annum, subject to meeting the qualifying conditions, which is not available to cohabitants.
If both cohabitants earn in excess of the standard rate band, then they both pay tax at 41% on any income in excess of €32,800. This is identical to the treatment of married couples on the same income levels.
Furthermore, as a result of the changes introduced in the recent Budget, these thresholds will increase to €33,800 and €67,600, respectively. This means that where both cohabitants pay tax at the higher rate, an additional €2,000 of a cohabiting couple's income will be subject to income tax at 20% rather than at 40%, resulting in a potential increase in net take home pay of €400 per annum.
In relation to your specific query, a married one earner couple with two children, earning €1,261.28 per fortnight, who is availing of the Homer Carers Tax Credit will pay €136.58 per fortnight in income tax, USC and PRSI in 2015. In contrast, a cohabiting couple with a single income of the same amount, who also have two children, will pay €231.19 per fortnight next year. These calculations are based on the assumption that the married couple are jointly assessed for income tax purposes.