The greatest difference between tax base deductions and tax benefits is that while tax credits, as the name shows, reduce only the basis of assessment, the tax benefits allow to reduce the amount of calculated tax.

Although the personal income tax system used several types of tax base deductions (benefits) in the last more than 25 years, the most important, however, are the family tax benefits currently available, and also the family contribution benefits supplementing these, that were reintroduced in 2011 and are irrespective of the amount of income.

The ratios are as follows:

For the first dependant a tax credit of HUF 66,670 can be deducted from the basis of assessment per month. For two children the monthly tax credit is HUF 133,330 per child and from the third child on HUF 220,000 can be deducted from the basis of assessment for each child and for every month.

However, only the parent who is entitled to the family allowance shall be eligible for this tax credit, and the act makes very sharp distinction here between spouses and de facto spouses.

The situation is unambiguous if the members of the couple married wish to avail themselves of the family tax benefits as spouses, as according to Sections 7, 8 and 12(1) of Act LXXXIV/1998 (the Act on Family Support the spouse of the parent, not being a biological parent himself/herself, is entitled to the family tax benefits not only for the biological child but also for the one who is not, i.e., the child of his/her spouse as it is he/she who falls into the circle of persons eligible for the family tax benefits as defined by the Act [14]. Accordingly, the spouse can claim the family tax allowance also for the child of the other spouse, and can apply for the division of the benefit regarding the deduction of the tax advance, irrespective of the fact that this spouse is not a biological parent.

For one and the same dependant the family allowance can be taken advantage of once only, but it can be exploited jointly, and can also be split in the tax returns (assessment by the employer of the tax payable).

Each of the spouses is considered eligible.

The situation is the same in case of the registered spouses so far as they have common child or children. The de facto spouses, if they are not living in a registered partnership for one year at least or if they do not live in the same household are not entitled to receive family allowance for the child who is not their common child and, accordingly, for the family benefits, either. In their case the number of dependants, and the rate of benefit is different, and they can use the benefits jointly only for their common child or children, while for children born from previous relations they can avail themselves. Lets’ presume, a family where the parents are registered spouses, but their relation is not registered and the mother has two and the father has one biological child. They have no common issue. In this case the mother can benefit from the family allowance for the two children and the father for one child. As a result, as regards the family benefits, the mother is eligible for such for two children and the father for one, irrespective of the fact, that the number of children raised in the family reaches three. In the sample case the parents are entitled to a family allowance of HUF 66,670 and respectively, HUF 133,330 per child (the mother to 2x HUF 133,330 and the father to 1x HUF 66,670). If, however, one of the registered spouses cannot avail himself/herself of the family allowance, the other one can avail himself/herself of the unused allowance in the annual tax returns, and in their case, as they have no common issue splitting is not possible when the tax advance is determined, only thereafter, i.e., when the annual returns are made.

When the parents are registered spouses, they raise three minors in their common household, one of whom is the biological child of the mother, one is the biological child of the father and they also have a common child, their eligibility for family allowance shall be as follows: for the children who are not their common issue the biological parents, for the common child at their option, either the father or the mother is entitled to apply for the family allowance. In view of the fact that for the child brought into the relationship, the non-biological parent shall be entitled to family allowance, the child of his/her de facto spouse can be considered as dependent in his case.

If, however, the administrative conditions are not met, then the common child of the de facto spouse shall qualify as beneficiary dependent of both parents, therefore, in case of de facto spouses the number of dependants cannot be more than two. Accordingly, with respect to the tax advance, the family benefit for each of them for his/her own child shall be HUF 133,330 per child, and for their common issue, one of them, or if they so decide, shared of them at their option shall have another HUF 133,330 family benefit. For the child from the previous relationship they cannot split the family benefits during the year, but they can do so at the end of the year in the tax returns.

In the following examples we present special cases. Spouses can avail themselves of the benefits during the year and they can choose to modify that way in which they take advantage of it.

In our examples we speak about non-registered (de facto) spouses.

This means that although they have three children, since the father and the mother are not registered de facto spouses, this determines the position of the children, namely, that each of them can take advantage of the benefit only for their own children, but at the end of the year, retroactively, they can utilize the amount that remained from the benefit of the other spouse, too. At the end, thus, the father does not pay any tax or contribution!