Tax Saving Tip 2023: How is the child allowance calculated? How does the child allowance work?

In Hong Kong, child allowance is a widely used tax benefit that can effectively reduce the tax burden of parents. However, many people may not be clear about the details of this tax policy. In this article, we will give you a detailed introduction to the child allowance policy in Hong Kong so that you can understand how to legally reduce your parents’ tax burden.

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Table of Contents

Child Allowance?

Qualifying for Child Allowance

How is the child allowance calculated?

Can a married couple split the child allowance?

Child Allowance?

Child Allowance is a Hong Kong tax policy that aims to reduce the tax burden of families with children. According to the Hong Kong Inland Revenue Department (IRD), each taxpayer is entitled to a certain amount of child allowance to cover his or her child rearing expenses. Specifically, each taxpayer is entitled to a child allowance of HK$12,000 per child, up to a maximum of HK$144,000.

Eligibility for Child Allowance

Raising children as a parent can be extremely challenging, especially in today’s society. Therefore, the child allowance policy can help relieve some of the financial burden on parents.

To qualify for the child allowance, you need to meet the following criteria:

Your child must be unmarried and under the age of 18 during the tax year;

Or be at least 18 years of age but under 25 years of age and in full-time education at a college, school or other educational institution;

or was incapable of working due to a physical or mental problem.

In addition, “child” means:

A child born to the taxpayer’s own, spouse, or former spouse;

A child adopted by the taxpayer’s own, spouse or former spouse

A taxpayer’s stepchildren, including stepchildren of a spouse or former spouse.

If the couple (not living separately) has more than one child who meets the above criteria, all child allowances must be claimed by one of them. It is up to the spouse to decide which spouse will claim.

How do I calculate the child allowance?

Calculating the child allowance is very simple. Basically, you just add up each qualifying child’s allowance to get the total amount of your child allowance. Also, each of your first through ninth children will receive a child allowance of HK$120,000.

In addition, the child allowance can be increased by an additional HK$120,000 for each child in the tax year in which the child is born. For example, if your child is born on 1 May 2022, then the child allowance for that year of assessment will be increased to HK$240,000 (as proposed in the 2023/24 Budget, the child allowance and the additional child birth year allowance will each be increased to HK$130,000 from the 2023/24 year of assessment, bringing the total to HK$260,000). It is important to note that the child allowance will be increased to HK$130,000 for the year of birth and HK$260,000 for the year of birth.

It is important to note that the total amount of child allowance cannot exceed your taxable amount. If the total amount of your child allowance exceeds your taxable amount, the remaining allowance cannot be used.

Can a couple split their child allowance equally?

No. Child allowances cannot be divided equally or freely. If you have more than one child with your spouse, only one spouse can claim all of the children’s allowances.

The IRS suggests that it is more advantageous for the spouse with the higher income or the spouse who is not assessed at the standard tax rate to claim the child allowance.

There are exceptions to this rule, however, where the divorced parents jointly pay for the care of the children, even if the step-parents are contributing to the expenses. In such cases, both parents and stepparents may be entitled to a portion of the child allowance. However, the parties must first agree on who should file the claim or how to split the amount. If a consensus cannot be reached, the IRS will allocate the child allowance in proportion to the amount each parent and stepparent pays to care for the child.

If you have a large family and have to support your parents and children, not just a family of three or four, or if you are eligible to claim multiple allowances, you can use the IRS website to calculate the amount of allowances and taxes payable for the entire family, and then file a joint tax return to determine the amount of tax credits to be paid separately so that you can have a budget. The above information is for reference. If you have any questions or information about tax filing (personal tax return, corporate tax return, accountant tax return), you are welcome to contact our professional consultants and we will provide you with a free quote and consultation service later.