Single-parent family: the budget headache

Single-parent families face a double challenge in managing their budget, lower average income and an additional tax burden. How can they cope and what support are they entitled to? myLIFE fills you in.

With lower incomes, unavoidable costs (rent, energy, etc.) and at times additional expenses (childcare), single-parent families often find it more difficult to make ends meet. To make matters worse, for the same gross annual income, they face an average tax rate up to twice that of a couple with no children. This state of affairs has been criticised by Luxembourg’s single-parent association, Collectif Monoparental, and is a source of concern for organisations such as Fondation Idea and Luxembourg’s private sector employee association, Chambre des Salariés.

Increased risk of poverty

According to the 2020 edition of STATEC’s Work and Social Cohesion Report, single-parent households face a lower standard of living. Making up around 5% of the population, they earned between €2,904 (single-parent family with one child) and €2,307 (single-parent family with several children) on average per month. By comparison, average earnings for a married couple with one child amount to €3,255. It’s therefore no surprise that single-parent families are at a greater risk of poverty. According to the same report, 25% of single-parent families with one child are faced with this risk, with the figure rising to 52% for single-parent families with several children. What’s more, Luxembourg’s rate of single-parent households living below the poverty line is among the highest in the European Union.

Single-parent families are at a greater risk of poverty.

Tax, a double blow for single parents

Another key factor is tax. Single parents aren’t subject to the same tax regime as married couples. At equal incomes, members of Category 1a (single parents and widows/widowers) are taxed more than those in Category 2. According to the tax scales applicable since 2017, this is the case for all income brackets between €22,500 and €87,950 per year. For single-parent families, it’s a double blow.

This situation has certainly been mitigated by the single-parent tax credit. However, this tax credit doesn’t fully make up for the difference and is subject to a means test. The credit amounts to €1,500 for adjusted taxable incomes of less than €35,000, and between €1,500 and €750 for annual incomes of between €35,000 and €105,000.

From the 2023 tax year, the single-parent tax credit will rise to €2,505 per year with an adjusted taxable income of less than €60,000. It will be between €2,505 and €750 if the taxpayer’s annual income is between €60,000 and €105,000. Finally, for adjusted taxable income in excess of €105,000, it will be €750 per year.

It’s also “reduced by 50% of the amount of any maintenance payments (maintenance, care, education and vocational training costs, etc.) from which the child benefits, insofar as they exceed the annual amount of €2,208 (€184 per month).” From the 2023 tax year, the ceiling will rise to the annual amount of €2,424 a year, or €202 per month.

Support for parents and children

Having a child in the home not only impacts expenses: when parents reduce working hours to look after their loved one, it can also reduce their income. With this in mind, current legislation allows for parents to benefit from certain types of support.

Available to all families under certain conditions, the birth allowance is made up of three tranches of €580.03 each, namely the prenatal allowance, the birth allowance as such, and the postnatal allowance.

The family allowance is a fixed monthly payment by the Caisse pour l’Avenir des Enfants (€299.86 according to the current index). The allowance is paid until the child turns 18, and may continue until they reach 25 in the case of higher education. The allowance is increased by €22.67 for each child from the month they turn 6, and by €56.57 from the month they turn 12.

Lastly, the annual back-to-school allowance aims to help parents pay for school supplies once their child reaches 6 years of age (€115 for children from 6 to 11, €235 from 12 onwards).

The childcare service voucher aims to cover part of the cost of childcare in an approved childcare facility or by a child minder.

Supporting childcare

Another type of direct government support is the childcare service voucher, which aims to cover part of the cost of childcare in an approved childcare facility or by a child minder. These vouchers can also be put towards the cost of creative activities or sports. As such, they’re a helping hand for households in search of a childcare solution or hoping to introduce their children to certain activities.

Small day-to-day efforts

In addition to these various types of assistance, families can ease the pressure by cutting costs. How? By adopting small, simple but effective measures to reduce expenditure. For example, adopt good habits in the home to reduce energy bills, whether this be low-energy light bulbs, putting on a warm jumper rather than turning up the heating or carefully selected household appliances.

Other simple gestures directly involve infants. The arrival of a new baby can be a real upheaval, especially in financial terms. Drawing up a baby list, avoiding unnecessary purchases and choosing second-hand or homemade products are all ways of keeping costs down.

Lastly, certain expenses linked to the new school year can be scrutinised. While some supplies are free, you can make additional savings by taking stock of the material you already have, buying in batches when necessary or visiting a book exchange.

While there’s no miracle cure for reducing the financial pressure on single-parent families, several types of support and some simple gestures can go a long way. Taking the time to find out more and showing greater discipline can often make a big difference.