Going into the month of December 2023, I only have a few weeks to take action to reduce my household’s tax bill for Year of Assessment 2024. This year, my tax planning took a little more time due to my new-found status as a parent of 2 children. I previously wrote an article on tax reliefs available to first-time parents. However, I realised that some of the information may require updating due to policy changes to encourage more baby making. Amazingly, Lenora’s birth was immaculately timed because had she been born a year later, the mechanism to compute Working Mother’s Child Relief (‘WMCR’) would have been very different and probably to my household’s disadvantage. Let me illustrate the key changes in the WMCR as well as provide the latest guide on tax reliefs and rebates specifically for parents in Singapore.
Working Mother’s Child Relief (‘WMCR’)
The current version of the WMCR is a tax relief derived by applying a percentage to an eligible mother’s earned income. These percentages are tiered based on the order of the child and can be added together if the mum has more than 1 child and the total is capped at 100% of her earned income*.
*Note that the combined reliefs arising from the WMCR and Qualifying Child Relief (‘QCR’) is capped at $50,000 per child.
Let me illustrate with examples using fictitious figures to make the illustration easier for my readers to understand. Diagram 1 illustrates the WMCR that Heartland Girl has been enjoying from 2019 to 2023 after Olympia was born.
From next year onwards, she can look forward to a higher amount of WMCR with the addition of a second child to the family. Diagram 2 also illustrates how the different percentages aggregate into a total WMCR for the eligible mother. For completeness, the applicable percentage to be applied to the mother’s earned income is 25% for the 3rd child and beyond.
Note that Diagrams 1 and 2 are only applicable if your child is born before Year 2024. This is because the WMCR will be replaced with a fixed dollar tax relief for qualifying children born on or after 1 January 2024 as shown in Diagram 3.
By replacing the percentage with a fixed dollar relief, it is clear that this is positive for low-income working mothers but negative for middle-income working mothers. Not convinced? Let me illustrate with examples of 2 mothers earning very different salaries.
As shown in Diagram 4, high-income earner will receive $42,000 lesser tax reliefs under the new WMCR. On the other hand, low-income earner will enjoy additional $12,000 in tax reliefs and in the example provided, pays no tax at all. According to the Labour Force in Singapore 2022 report, the annual salary of women in 2022 was $59,376. Therefore, in absolute numbers, my guess is that more women are probably going to be worse off after this change.
Thankfully, the concept of Grandfathering will apply to the WMCR. Therefore, as long as your child was born before 1 Jan 2024, the old way of computing WMCR will apply. Still confused? Let me illustrate with an example whereby a mother has children born in both eras. As Diagram 5 illustrates, how WMCR is applied is dependent on the year that your child is born.
Aside to Heartland Girl: This is merely an educational blogpost for my readers to illustrate the impact of the change in WMCR. Do not be alarmed and overthink.
It is always important to analyze the impact of WMCR on my household first because it directly affects our decision on which of us should be the one utilising the QCR. The decision may not always be as straightforward as having the higher income earner between the married couple utilise it.
Qualifying Child Relief (‘QCR’)
The QCR is $4,000 per child and can be apportioned between the father and mother. As our household have 2 children now, the total QCR has increased to $8,000. This is definitely welcomed by me although I would like to see a tiered tax relief instead that is similar to WMCR. That will probably mirror the effort required when you go from 1 to 2 children in the household – it is never linear but exponential instead.
Recall why I state that it is not always an obvious case that the higher income earner should be utilising the QCR? Let’s look at Diagram 6 which compares 2 scenarios when a different income earner utilises the QCR.
In Diagram 6, the household is better off with the father (lower-income earner) utilising the QCR arising from the 2nd child and not the mother who is the higher income earner. On first thought, this doesn’t appear to be the best financial decision because it is counter intuitive in a progressive tax regime. However, we need to pay attention to the fact that the maximum allowable combined QCR+ WMCR relief per child is $50,000. In Diagram 6, the mother’s WMCR for the 2nd child alone is already $50,000! Applying the QCR on her would reduce her WMCR to $46,000 which is essentially leaving money on the table to IRAS.
Unfortunately, QCR is not automatically applied and hence planning beforehand is recommended between a married couple with children to minimize the taxes payable.
Parenthood Tax Rebate (‘PTR’)
Out of all the tax incentives available to me, the PTR is the one I look forward to the most. As a tax rebate and not a relief, this is equivalent to a cash gift from the government akin to the Baby Bonus. Do note that this is a one time rebate and does not recur annually unlike QCR and WMCR.
As shown in Diagram 7, my household will be handed a tax rebate of $10,000 which will go a long way to relieve my tax obligation for YA 2024.
The PTR can be apportioned between the mother and father and since it is given as a rebate, there is no need for complex simulations to decide who should be utilising it. From the household perspective, there will be no difference in terms of the total taxes paid. Moreover, any un-utilised PTR will be automatically carried forward to the next year to offset future income tax liabilities. Do me a favour, don’t let Heartland Girl know about this because I plan on utilising it all.
Grandparent Caregiver Relief (‘GCR’)
Last but not least, the Grandparent Caregiver Relief (‘GCR’) 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. Heartland Girl has been utilising this because her mother quit her job to look after Olympia when she was born. Indeed, now I truly understand why it often takes a village to raise a child.
Note that the GCR 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.
This concludes the latest guide on tax reliefs and tax rebates for parents in Singapore, 2023 edition. Special thanks to Lenora for providing some tax reliefs for Daddy and Mummy. You have truly been a blessing to us.
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