Sunday 21 October 2018

Who is better off: the family with one or two breadwinners?

'EY examined the take-home pay of a married couple in their late 30s who have children aged seven, five and four.'
'EY examined the take-home pay of a married couple in their late 30s who have children aged seven, five and four.'

Independent.ie Business

The squeezed middle are still worse off than at the height of the Celtic Tiger in 2006 when it comes to take-home pay - but next year some families with two working parents will almost take home as much of their pay after tax as they did in 2006.

Furthermore, a squeezed-middle family with two working parents is in a much better financial position after paying their taxes under Budget 2018 than a family where one parent stays at home to look after their children, our analysis found.

EY examined the take-home pay of a married couple in their late 30s who have children aged seven, five and four. The family's income is €110,000. EY examined if this family would be better off after tax if both parents worked - or if one stayed at home to look after the children with the other being the breadwinner.

For the working duo, EY assumed that one parent earns €70,000 as a full-time employee, while the other earns €40,000 as a part-time employee.

At €78,221, the take-home pay of the working duo is only €677 less under Budget 2018 than it was under Budget 2006, according to Pat O'Brien, executive director with EY. So looking solely at take-home pay, this two-income household will be only €13 a week worse off next year than they were at the height of the Celtic Tiger.

By comparison, a family on the same income but where only one spouse works will be €72 a week worse off next year than they were in 2006.

At €70,649, the take-home pay of a one-income household on €110,000 will be €3,738 less under Budget 2018 than it was under Budget 2006, according to O'Brien.

The main reason the one-income family is worse off financially than the two-income household is that the USC has a bigger impact on the income of the sole earner than it has on the combined income of two breadwinners. On the plus side for the family with the stay-at-home parent, the home carer tax credit was increased to €1,200 under Budget 2018.

This credit, which was worth only €770 in 2006, is given to married couples or civil partners (who are jointly assessed for tax) where one spouse or civil partner works in the home caring for a dependent person.

The introduction of the USC together with increases in PRSI are the main reasons both of these squeezed middle families are coming home with less take-home pay than in 2006.

Each family will pay less income tax next year than they did in 2006 - however they'll pay more tax levies next year (through the USC) than they did in 2006 (through the health levy) and their PRSI bill will also be higher.

Furthermore, the amount of child benefit this family will be entitled to next year will be about €707 less than what they you were entitled to in 2006. In 2006, child benefit was worth €5,747 to a family with three young children - but next year it will be worth €5,040. There were no increases in child benefit rates in last Tuesday's Budget.

Sunday Indo Business

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