If you have children, or are planning to have children, it’s worth knowing that the tax situation for parents will be changing in the future.
Currently, there is a benefit called the income-related combination tax credit (IACK), for working parents with young children.
The benefit, which supported around 950,000 households in 2021, gives a tax credit to the parent with the lowest income (or to a single parent). It is intended to encourage both parents to have paid work, and is currently, in 2022, worth a maximum of €2.534, based on 11.5% of income.
Parents are entitled to the benefit until the youngest child is 12, and they need to be registered at the same address as the child for at least six months of the year. It also applies to step-children, adopted children and children from a fiscal partner’s previous relationship. If both adults earn the same, then the older adult gets the perk.
However, as part of the latest government coalition agreement, this benefit is planned to be phased out from 2025 for new adults who become parents, and the level of the benefit is being gradually reduced until then.
‘It’s a very beneficial tax credit, to encourage the second partner to work,’ said a Blue Umbrella tax adviser. ‘But it is being partially replaced with something different. We are going to have increased parental leave, from August this year. The tax office will support your loss in income for nine weeks.’
The change in parental leave, which can be taken flexibly, means that new parents can take between one and nine work weeks off and have their salary paid by the state, during this period. There is also a right, until a child is eight, to take unpaid parental leave, which is a maximum of 26 times the number of hours in the working week (in other words, six months).
The IACK change needs to be formulated in a law and then pass through the lower and upper houses of parliament before it becomes the rule.
Blue Umbrella advises working parents to ask for advice about their tax situation, to take best advantage of tax incentives and government benefits, and to have a good oversight of the family budget for several years ahead.
For help with your situation, contact a Blue Umbrella adviser.