We take a look at the tax implications of returning to work after a career break or taking up a flexible job having worked full time. We ask does it financially make sense & the various ( all important) tax bands.

Good afternoon! Justin O’Keeffe from Talent Force Improvement to continue our mission to help parents who are trying to work or simply looking for more family-friendly or flexible roles. Today we’re going to ask and look at the question and broad principles of the tax system and where you stand if you’re returning to work or perhaps changing to more flexible roles.

So, first up – this is not meant to be a canting advice, everyone’s tax situation can be slightly different for a whole myriad of reasons, but this will give you sort of broad principles behind the tax system, and where perhaps there’s some opportunities and some challenges. So the first thing we would say is, for your average couple, one spouse is working and one spouse is not working, and revenue deem these people, if they’re married or in a civil partnership to be joint assessed.

Okay, now. For your average single person in Ireland, the 20% top tax rate finishes and the 40% tax rate kicks in at €36,500. Meaning any earnings above €36,500 are taxed at the higher tax rate. Now, however what revenue will allow a married or civil partnership couple to do is they will allow the non-working spouse to transfer €1650 which is their personal, unused personal tax credit, will allow them to transfer from the non-working spouse to the working spouse. And what that means is that the 20% threshold in a married or a civil partnership, that threshold moves from €36,500 to €42,800 meaning that any earnings above €42,800 are now taxed at the 40% tax rate. Okay, so there’s a direct transfer of this €1650 from one partner to the other.

However, the opportunity lies in the fact that one partner isn’t working and what revenue will allow then is for the other spouse to earn €24,800 euros before the top tax rate kicks in. Now, this is a question we get asked frequently is ‘If I return to work am I immediately going to hit the 40% tax rate?’ And the answer is ‘No’. What revenue will allow you to do is the 20% tax rate will finish and you will be into the 40% tax bound at €24,800. Now, one of the challenges is that because you don’t have certain credits, you will start paying tax at a lower amount; effectively that 20%-40% transition is €24,800. Actually, it’s even perhaps more onerous  because at €24,800, every euro you earn above that you actually end up paying 49% by the time you take USC and PRSI into account.

So, while some of your tax credits are left in here perhaps with the higher wage and your marginal rate, your percentage rate is actually quite low relative to the single, it’s questionable whether it’s worth earning an awful lot more than this because the tax burden is so steep. Okay? So the higher tax rate is kicking in so much more quicker. So returning to work can cause a lot of financial issues around, you know, you need a car, you need childcare, I need new arrangements. But up €24,800 you’re at the lower tax rate and then you transition to the higher tax rate.

I hope this helps. Feel free to ask us any questions. My email is justing@talentforce.ie or julie@talentforce.ie or give us a call: 01 9081514 and I’ll include the link to the Irish Times article below this video. Thanks for your time, take care – bye-bye!