Tax treatment of Maternity, Adoptive, and Health & Safety Benefits payable up to 30 June 2013
Maternity Benefit, Adoptive Benefit and Health & Safety Benefit payable by the Department of Social Protection (DSP) up to 30 June 2013 are not regarded as income for the purposes of the Income Tax Acts and should be disregarded for all tax purposes.
The tax treatment of the three benefits mentioned above is similar and references below to ‘Maternity Benefit / leave’ may be taken to include each of the other two Benefits.
Whether the payment requires to be taken into account by the payroll office will depend on the particular circumstances or arrangements in place between employers and employees while employees are on maternity leave and in receipt of Maternity Benefit from the DSP.
The treatment in specific situations is outlined below:
Employers who pay wages, salary, etc., to employees while out on maternity leave and recover the Maternity Benefit from the employees or directly from the DSP.
In such circumstances, only the difference between the wages, salary, etc. paid and the Maternity Benefit recovered is subject to tax, USC and PRSI in the pay period.
Employers who pay wages, salary etc., to employees while out on maternity leave (top-up etc.) and the employees retain the Maternity Benefit
Where an employer pays an employee full or partial wages or salary while out on maternity leave and the employee retains the Maternity Benefit, tax, USC and PRSI should be charged only on the amount of wages or salary actually paid.
Employers who do not pay wages, salary etc., to employees while out on maternity leave and the employee retains the Maternity Benefit
If owing to the absence from work through maternity leave, the employee is entitled to receive no emoluments on the usual pay day, the employer shall, on application being made by the employee or their authorised representative, make such repayment of tax to the employee as may be appropriate, having regard to their cumulative emoluments at the date of the pay day in question and the corresponding cumulative tax.
Alternatively, on the employee’s return to work after a period of maternity leave, any refund of tax which may be due to the employee for the current tax year, can be calculated having regard to their cumulative emoluments at the date of the pay day in question and the corresponding cumulative tax. In this situation the employer should contact Revenue to confirm that it is in order to make such a refund. If the period of maternity leave was over two tax years, the employee can apply to Revenue for any refund that may be due for the year prior to the current year.
Of course an employer should not make a refund unless they are in possession of current year cumulative tax credit certificate in respect of the employee in question.
Tax treatment of Maternity, Adoptive, and Health & Safety Benefit payable from 1 July 2013
Maternity Benefit, Adoptive Benefit and Health & Safety Benefit, payable from the Department of Social Protection (DSP) from 1 July 2013, will be taxable in full. However, Universal Social Charge (USC) and PRSI will not apply.
The tax treatment of the three benefits mentioned above is similar and references below to ‘Maternity Benefit / leave’ may be taken to include each of the other two Benefits.
As part of the ongoing exchange of information arrangements between DSP and Revenue, Revenue will receive Maternity Benefit details which will be updated onto Revenue’s records.
A DSP Maternity Benefit recipient who pays their tax through the PAYE system will have their annual tax credits and cut-off point reduced by the Maternity Benefit amount which will result in additional tax being stopped from any employment/non-DSP pension they have.
Employers will be advised of the adjusted tax credits and cut-off points on employer tax credit certificates (P2Cs).
As Maternity Benefit is being taxed by reducing employees’ tax credits and cut-off points, employers are not to include figures for Maternity Benefit on forms P45, P60 or P35L.