Child tax bonus

What it means

The child tax bonus reduces the tax of a parent with a dependent child. Unlike the tax-free allowance it cuts the tax itself rather than the base, and any excess is paid out.

The amount depends on the child’s age and is capped at a percentage of the partial tax base. On a low income a parent may therefore fall short of the full amount even when otherwise eligible.

Apart from the name it has nothing in common with the tax bonus on mortgage interest. Nor is it a social benefit like child allowance: only a parent with taxable income from employment or business qualifies, and without such income the bonus cannot be claimed at all.

How it works in practice

For an employee it is applied monthly in payroll on the strength of a declaration and the child’s documents. If it was not claimed during the year it can be caught up in the annual reconciliation or the return.

The employer reports the bonus paid in the monthly payroll return and offsets it against advances withheld. With several children it visibly lowers the company’s monthly remittance.

A sole trader claims the bonus not monthly but once a year in the tax return. When preparing it we ask the client for the children’s details and check that the other parent has not claimed the same months through their employer, so the entitlement is not counted twice.

What to watch out for

Only one parent may claim it, and only for a child who qualifies. If both claim, the office spots it when the filings are matched and the difference comes back with a penalty.

Only the employer with whom the employee signed the tax declaration may apply the bonus. When someone changes jobs mid-month, the two employers must not both apply it for the same month; if they do, the employee repays the difference in the annual reconciliation, usually when least expecting it.