Guide On Tax Reliefs For First-Time Working Parents

If you are a first-time parent, it is common to find that the new-born takes centre stage in every aspect of your life. Filing for taxes would be placed at the backburner even during the income tax reporting season. Unfortunately, as the saying goes, nothing in this world is as certain as death and taxes. Therefore, why not take advantage of your upgraded status as a working parent to lower your tax bill? As newly-minted parents, you will find that the Singapore government has conferred you a slew of tax incentives. To save you the hassle of combing through various sources, this article targets to be a comprehensive guide on the various tax reliefs unique only to working parents.

1. Qualifying Child Relief (‘QCR’)

Description:

This is an income tax relief for working parents in recognition of their efforts of having supported and maintained an unmarried child during the year of assessment. This can be loosely interpreted as a form of parent tax relief.

Qualifying Child Relief Criteria*:

• Child is below 16years old or studying and
• Child does not have an annual income exceeding $4,000

*For the complete criteria, kindly refer to IRAS’s website

How Does Qualifying Child Relief Work?

QCR is capped at $4,000 per child and can be apportioned between the father and mother. As a tax relief, the QCR is subtracted from your assessable income to determine the chargeable income.

Note: If the child is handicapped, the parent can apply for Handicapped Child Relief (‘HCR’) instead as the tax relief is higher at $7,500 per child.

Heartland Boy’s Friendly Tip:

Since the $4,000 QCR can be apportioned between the parents, it makes practical sense for the higher-income earner to utilise a larger portion of the QCR. As an example, if the father has chargeable income of $200,000 during the year of assessment, his tax rate on the last $40,000 earned would be 18%. On the other hand, if the mother has chargeable income of $120,000 for the year, the tax rate on the last $40,000 earned would be 11.5%. The household would enjoy a net saving of $260 (18%-11.5% X $4,000) if the father uses the entire QCR instead of the mother. But as a married man, Heartland Boy knows that managing household finances is never as straightforward as the math suggests here.

2. Working Mother Child Relief (‘WMCR’)

Description:

This is an income tax relief for mothers who remain in the workforce after having children who are Singapore citizens. The rationale for WMCR is to encourage mothers to continue to contribute to the workforce.

Working Mother Child Relief Criteria:

1. • Working mother who is married, divorced or widowed and has taxable earned income
   • Maintained a child who is a Singapore citizen and complied with all the conditions of QCR/HCR

How Does Working Mother Child Relief Work?

1. • For the 1st child, mothers can claim up to 15% of her earned income as tax relief.
   • For the 2nd child, mothers can claim an additional 20% of her earned income as tax relief.
   • For the 3^rd child and beyond, mothers can claim an additional 25% of her earned income as tax relief per child.
   • WMCR percentages are added together if the mother has more than 1 child and the total is capped at 100% of the mother’s earned income.

Table 1 is an example of how to calculate a Working Mother Child Relief for various scenarios.

Heartland Boy’s Friendly Tip:

Note that the combined reliefs arising from QCR/HCR and WMCR is capped at $50,000 per child. Perhaps, it will be better to illustrate this with an example.

The earned income for the mother during the year of assessment was $320,000. Assuming the family has only one child named Ah Boy, the mother ought to qualifiy for WMCR of $48,000 (15% X $320,000). However, if either parent has claimed QCR for Ah Boy, the mother’s resulting WMCR would reduce to $46,000 instead. ($50,000 – $4,000)

In the scenario highlighted above, it makes financial sense for the higher-income earner (mother) to utilise the QCR since the total tax paid per household is lower.

*Note the scenario does not take into account that the total amount of personal income tax reliefs allowed per individual is subject to an overall relief cap of $80,000 per year of assessment.

3. Grandparent Caregiver Relief (‘GCR’)

Description:

This is an income tax relief given to working mothers who has engaged the help of their parents, parents-in-law, grandparents or grandparents-in-laws (the ‘Caregiver’) to take care of their children.

Grandparent Caregiver Relief Criteria:

1. • Working mother who is married, divorced or widowed
   • The Caregiver was living in Singapore (for a period of at least 8 months) during the Year of Assessment, was looking after any of applicant’s children (aged 12 years and below), and was not working.
   • No one else (eg: siblings or sibling-in-law etc) has claimed GCR on the same Caregiver

How Does Grandparent Caregiver Relief Work?

Tax relief applicant may claim a maximum of $3,000 tax relief on any one Caregiver. Even if the working mother has multiple caregivers looking after her children, the maximum tax relief she can receive from GCR will be $3,000. GCR will be subtracted from assessable income to derive the chargeable income.

Heartland Boy’s Friendly Tip:

Once again, it makes sense for the highest income taxpayer to utilise the GCR. However, as the caregiver could be a parent/grandparent in-law, the search to determine the highest taxpayer now encroaches into the extended family. If your sister-in-law is claiming GCR on the same Caregiver, you might need to discuss in a sensitive manner on the best approach to yield the greatest tax savings for the extended family.

4. Parenthood Tax Rebate (PTR)

Description:

The Parenthood Tax Rebate is given to tax residents to encourage them to have more children.

Parenthood Tax Rebate Criteria:

• A Singapore tax resident who is married, divorced or widowed
• Child is born during the year of assessment and is a Singapore citizen at time of birth or becomes one within 12 months thereafter

Note: For stepchildren and children who are adopted, please refer to IRAS website.

How Does Parenthood Tax Rebate Work?

As this is a tax rebate, it directly offset the tax liabilities of the applicant. It therefore functions as a form of tax credit. PTR can also be apportioned between the mother or the father. PTR awarded depends on the child order of the new-born as shown in Table 3.

Child Order	PTR (For child born from Year 2008 onwards)
1st	$5,000
2nd	$10,000
3rd and beyond	20,000

 

In addition, unutilised PTR can be brought forward to future years to offset future income tax liabilities and has no expiry date. As an example, if the father receives $10,000 in PTR (a one-time or lump-sum tax credit as he welcomes a second child into the family) and has tax payable of $3,000, he makes no income tax payment for the year. In addition, he can carry forward the remaining PTR balance of $7,000 into the next assessment year.

Heartland Boy’s Friendly Tip:

As PTR is given as a form of income tax rebate rather than as a income tax relief, regardless of which income earner utilises the PTR, there will be no difference to the household in terms of income taxes paid.

While the PTR is a welcome relief on one’s tax liabilities, it should not be pursued singularly without giving serious consideration about the cost and responsibilities that come with raising a child.

Tax Reliefs For First-Time Working Parents

Hopefully this article will make it easier for new parents to file claim for their tax reliefs and rebates online. IRAS has provided a good summary via an infographic which makes the information more digestible.

Here are other articles on other types of tax reliefs and deductions that everyone, not just working parents, may be eligible for:

• Reduce Income Tax: CPF Retirement Sum Topping Up Scheme
• Enjoy Tax Relief When You Voluntarily Contribute Cash To CPF Medisave
• Open SRS Account To Boost Retirement Planning
• How To Save On Income Tax In Singapore

This article is published in March 2018.

Note: As the criteria to qualify for the various income tax reliefs and rebates have been condensed for simpler reading, readers may want to refer to IRAS’s website to get the complete definition on the various criteria.