I am informed by the Revenue Commissioners that, as regards separated spouses, the above question gives rise to a number of issues that may be enumerated as being:
1. the tax treatment of maintenance in respect of children;
2. the tax relief in respect of child care;
3. the tax treatment of maintenance to a spouse;
4. the tax credits to which separated spouses may be entitled.
As regards items 3 & 4, it is probably best to outline these in the context of situations where maintenance is payable under a voluntary arrangement and where the maintenance is payable under a legally binding arrangement.
1. The tax treatment of maintenance in respect of children
Maintenance in respect of a child is ignored for tax purposes irrespective of whether such maintenance is paid under a voluntary or legally binding maintenance arrangement.
2. The tax relief in respect of child care
There is no tax relief in respect of child care irrespective of whether parents of the children in child care are married, separated, widowed or unmarried.
3. Non-legally binding (voluntary) maintenance arrangements
3.1 Tax treatment of maintenance payments
Where a legally binding maintenance arrangement is not in place (i.e. voluntary maintenance payments are made) the spouse who makes the payments is not entitled to a tax deduction for them. Additionally, the spouse who receives the payments is not taxed on them.
3.2 Tax credits
Both spouses are taxed on their own income as single persons. Each spouse is entitled to the single person's tax credit and, if in employment, the PAYE tax credit.
However, if the voluntary payments are sufficient to wholly or mainly maintain the spouse, the payer will be entitled to claim the married persons tax credit. The spouse receiving the payments can also claim single person's tax credit against his/her income (if any).
In addition, the one-parent family tax credit may be claimed by a single parent whether widowed, single, deserted, separated or divorced, who is not co-habiting and who has a dependent child resident with him or her for the whole or part of the relevant tax year.
4. Legally binding maintenance arrangement
4.1 Tax treatment of maintenance payments
Where a legally binding maintenance arrangement is in place, the spouse who makes the payments is entitled to a tax deduction for them. Additionally, the spouse who receives the payments is taxed on them.
4.2 Tax credits
Both spouses are taxed on their own income as single persons. Each spouse is entitled to the single person's tax credit and, if in employment, the PAYE tax credit.
In addition, the one-parent family tax credit may be claimed by a single parent whether widowed, single, deserted, separated or divorced, who is not co-habiting and who has a dependent child resident with him/her for the whole or part of the relevant tax year.
Alternatively, a separated couple who have in place a legally binding maintenance arrangement (i.e. the maintenance payments are legally enforceable) can elect to be treated as a married couple for income tax purposes if they are both resident in the State.
A divorced couple also have the option of being treated as a married couple for income tax purposes if they are both resident in the State and neither spouse has re-married. However, where a civil annulment is obtained there can be no election to be taxed as a married couple.
Where a separated couple wish to be treated as a married couple for tax purposes, they must submit a joint election in writing before the end of the tax year (the election must be signed by both spouses). If such an election is made, maintenance payments are ignored for tax purposes, that is, the spouse making the payments does not get a tax deduction for them and the spouse who receives the payments is not taxable on them.
Where both spouses have income, separate assessment will apply. Tax credits and standard rate cut-off point will be apportioned between the spouses, subject to a review at the end of the year. This ensures that any unused tax credits or relevant rate bands may be given to the other spouse.
Where only one spouse has income the full tax credits, reliefs and tax rate bands will be given to that spouse.
More detailed information is contained in the Revenue Commissioners' explanatory leaflet IT 3 — What to do about tax when you separate which is available on the Revenue website www.revenue.ie.