Tax Credits & Reliefs >> Separated Couples

Tags: maintenance payments, separation, children

When a marriage breaks down and couples decide to separate, the tax implications can be significant and need to be carefully considered. 
The division of assets, tax treatment of maintenance payments and the claiming of tax credits all need to be examined. 
If there are dependent children it is possible for the couple involved to claim double the normal personal tax credits than they would have been entitled to had they remained married. This arises under the single parent family credit. 
Maintenance payments for the support of children are ignored for tax purposes. Payments for the support of a spouse may also be ignored for tax purposes if the couple involved agree to this. Alternatively the spouse maintenance payments can be treated as income for the recipient and as a tax deduction for the payer. 
In the year of separation the spouse who has responsibility for making tax returns to the Revenue continues to be treated as a married person for the remainder of that year assuming the couples tax affairs were previously dealt with on a joint basis of assessment. The other spouse is treated as a single person for the remainder of the tax year. 
Thereafter the couple must decide how they wish to have their tax affairs dealt with. They may choose to continue as though they were a married couple and the normal married persons tax credits and 20% tax rate band will apply. Alternatively they may decide to be taxed as two single people, which may in certain circumstances give a more favourable tax treatment. Which option to choose depends on the level of income of each spouse and if they have dependant children. The claim for a single parent tax credit is often overlooked by separated couples. Each of the couple can in fact claim this credit provided the child resided with each of them at some time during the tax year. 

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