Calculation of Tax Under the PAYE System

  1. Employer's duty to deduct tax
  2. Calculation of tax - 4 different methods
  3. Cumulative basis
  4. Cumulative tax credits and standard rate cut-off point
  5. Tax deductions and refunds by the employer (cumulative basis)
  6. Non-cumulative basis (week 1/month 1 basis)
  7. Temporary basis
  8. Emergency basis
  9. Separate periods of employment with one employer treated as one continuous period for emergency basis purposes
  10. Tax exemption and marginal relief
  11. Taxation of illness benefit and occupational injury benefit
  12. Jobseeker's benefit
  13. Treatment of Maternity, Adoptive and Health & Safety Benefits

1. Employer's duty to deduct tax

It is the employer's duty to calculate and deduct the tax, if any, due from the pay, including notional pay (Definition of Pay part 5.2), of every liable employee.

It is important to remember that "employee" includes a director and an occupational pensioner.

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2. Calculation of tax - 4 different methods

PAYE tax deductions are calculated using one of the following methods:

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3. Cumulative basis

The purpose of the PAYE system is to ensure that an employee's tax liability is spread out evenly over the year.

To ensure that this is achieved, PAYE is normally calculated on a cumulative basis. This means that when an employer calculates the tax liability of an employee, they actually calculate the total tax due from 1 January to the date on which the payment is being made.

The tax to be deducted in a particular week or month is the cumulative tax due from 1 January to that date, reduced by the amount of tax previously deducted. The cumulative system operates for both tax credits and standard rate cut-off points. Any tax credits and/or standard rate cut-off point, which are not used in a pay period, are carried forward to the next pay period within that tax year.

Another feature of the cumulative basis is that refunds can be made to an employee where for example the employee's tax credits and standard rate cut-off point have been increased.

Calculation of tax

The calculation of tax for each pay period is made by applying the information supplied in the tax credit certificate against the net pay (Definition of pay part 1), using the following steps:

  1. Tax is calculated at the standard rate of tax on net pay up to the amount of the individual's standard rate cut-off point
  2. Any balance of net pay above the cumulative standard rate cut-off point is taxed at the higher rate of tax
  3. The tax calculated at the standard rate is added to the tax calculated at the higher rate to arrive at the gross tax figure
  4. The gross tax figure is then reduced by the amount of the individual's tax credits, as advised by Revenue, to arrive at the tax payable in that week or month

A PAYE employee earns €41,600 per annum (€800 per week). Revenue issued a tax credit certificate to his employer showing the following figures:

  • Standard rate cut-off point - €34,000 (per year), €653.85 (per week)
  • Tax credits - €3,580 (per year), €68.85 (per week)

For the purposes of this example, the rates of tax are taken as 20% (standard rate) and 41% (higher rate).

The tax calculation for week number 1 would be as follows:

€653.85 @ 20% = €130.77

€146.15 @ 41% = €59.92

Gross tax = €190.69

Less tax credit of €68.85

Net tax due = €121.84

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4. Cumulative tax credits and standard rate cut-off point

The totals of the employee's tax credits and standard rate cut-off point for the year are given on the tax credit certificate issued to the employer by Revenue.

If the employee is paid weekly, this figure is divided into weekly amounts on a cumulative basis, as in the following example:

  • Yearly - Tax credits €3,580, Standard rate cut-off point €34,000
  • Monthly - Tax credits €298.34, Standard rate cut-off point €2,833.34
  • Weekly - Tax credits €68.85, Standard rate cut-off point €653.85

Example 1 - employee paid weekly

Tax credits and standard rate cut-off point for employees paid on a weekly basis
Week No. Tax Credit € Standard Rate Cut-Off Point
1 68.85 653.85
2 137.70 1307.70
3 206.55 1961.55
4 275.40 2615.40
5 344.25 3269.25
6 413.10 3923.10

Tax for any week is computed by reference to the cumulative tax credits and standard rate cut-off point.

For a pay day falling in week 3, the cumulative tax credits are €206.55 and the standard rate cut-off point is €1,961.55

For a pay day in week 5 the cumulative tax credits are €344.25 and the standard rate cut-off point is €3,269.25

If any change occurs which affects the employee's tax credits or standard rate cut-off point Revenue will issue a new tax credit certificate showing the new tax credits/standard rate cut-off point now due.

Example 2 - employee paid monthly

If the employee in example 1 was paid on a monthly basis, the tax credits and standard rate cut-off point would be divided into monthly amounts as follows:

Tax credits and standard rate cut-off point for employees paid on a monthly basis
Month No. Tax Credit € Standard Rate Cut-Off Point
1 298.34 2833.34
2 596.68 5666.68
3 895.02 8500.02
4 1193.36 11333.36
5 1491.70 14166.70
6 1790.04 17000.04

Tax for any month is computed by reference to the cumulative tax credits and standard rate cut-off point.

For a pay day falling in month 3 the cumulative tax credits are €895.02 and the standard rate cut-off point is €8,500.02

For a pay day in month 5 the cumulative tax credits are €1,491.70 and the standard rate cut-off point is €14,166.70

If any change occurs which affects the employee's tax credits or standard rate cut-off point Revenue will issue a new tax credit certificate showing the new tax credits/standard rate cut-off point now due.

5. Tax deductions and refunds by the employer (cumulative basis)

Tax Credits are non-refundable.They are used to reduce tax calculated on net pay (paragraph 3).

Where a cumulative tax credit certificate is held, any unused tax credits are carried forward on a cumulative basis to subsequent pay periods within the same tax year. Tax credits unused at the end of the tax year, 31 December, are not carried forward to the following year.

Example 1

If the gross tax payable on net pay in a period is €100 and the tax credit due is €120, the employee simply has no tax liability for that pay period. The difference of €20 is not refunded.

The unused tax credit of €20 is carried forward for offset against tax due in the subsequent pay period(s).

Refunds generally

Tax refunds will arise where cumulative tax paid for the previous pay period exceeds cumulative tax payable for the current pay period.

Example 2

The employer holds a tax credit certificate or a tax deduction card for an employee who is normally paid €500 weekly after allowable deductions.

  • The employee's tax credits are €110 per week.
  • The standard rate cut-off point is €650 per week.

The tax is calculated as follows:

(For the purposes of this example the standard rate of tax is taken as 20%)

Tax refunds and cumulative tax credits
Week no. Cumulative net pay to date Cumulative standard rate cut-off point Cumulative gross tax Cumulative tax credit Cumulative tax due
1 500 650 100 110 0
2 1000 1300 200 220 0
3 1500 1950 300 330 0
4 * 2200 2600 440 440 0
5 ** 3000 3250 600 550 50
6 3800 3900 760 660 100
7 4600 4550 920 770 150
8 *** 4600 5200 920 880 40 (110 refunded)
9 **** 5400 5850 1080 990 90

In week 3, the employee has unused cumulative tax credits of €30.

These are non-refundable but they can be carried forward to subsequent pay period(s) within the same tax year.

* In week 4, the employee is paid an additional €200 in overtime giving a total pay figure for that week of €700. The unused tax credits of €30, carried forward from week 3, is utilised in this pay period.

** In weeks 5 to 7 inclusive, the employee earns €800 per week.

*** In week 8 the employee is absent temporarily from work and receives no pay. He did not receive and was not entitled to receive any benefits from the Department of Social Protection.

Note
When the cumulative basis applies the employee is still entitled to their tax credits and standard rate cut-off point (Refunds of income tax to the employee part 3) even though they have no pay on this pay day.

The cumulative tax liability of €150 deducted up to week 7 exceeds the cumulative tax liability of €40 at week 8. The difference of €110 is therefore refunded to the employee. This is not a refund of the employee's tax credits but rather a refund of excess tax that the employee has paid in the year to date. If the individual had no tax deducted up to week 7, no refund would be due.

**** In week 9 the employee returns to work with the employer and earns €800. The tax credits and standard rate cut-off point are as in earlier weeks.

The tax payable in week 9 pay day is:

Cumulative tax payable in week 9 = 90

Less:Cumulative tax paid in week 8: -40

Tax payable in week 9 pay day = 50

Deductions (or refunds) along these lines continue for the remainder of the tax year unless there is a change in the employee's circumstances or the employer receives an amended tax credit certificate.
Where the cumulative basis applies, amended tax credits/ standard rate cut-off points have effect from the previous 1 January.

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6. Non-cumulative basis (week 1/month 1 basis)

In certain circumstances Revenue may direct an employer to deduct tax on a week 1 or month 1 basis. This instruction will be clearly given on the tax credit certificate.

Where the week 1/month 1 basis applies,

  • the pay
  • the tax credits and
  • the standard rate cut-off point

are not accumulated for tax purposes.

The pay for each income tax week or month is dealt with separately. The tax credits for week 1 (or month 1) are applied to pay for each week (or each month) and tax is deducted accordingly. No refunds may be made by the employer in such cases.

Although pay is not accumulated for tax purposes, the employer must take total pay to date into account for the purpose of the ceiling for PRSI contributions.

Where an employer holds a tax credit certificate on a cumulative basis and they subsequently receive a tax credit certificate or tax deduction card issued on a week 1/month 1 basis, the new basis will apply from the first pay day after the date of issue printed on the certificate.

7. Temporary basis

The temporary tax deduction basis must be used where the employer has been given parts 2 and 3 of a current year or preceding year form P45, stating:

  • the employee's PPS number and
  • the employee was not on the emergency basis and

the employer has sent part 3 of the form P45 to Revenue and is awaiting the issue by Revenue of a tax credit certificate.

The entries on the temporary tax deduction card are made on a non-cumulative basis (week 1/month 1 basis) and the calculation of tax due each week (or month) is done on the same basis as in the week 1/month 1 procedure outlined in paragraph 6

The weekly or monthly tax credits and standard rate cut-off point shown on form P45 should be given to the employee on a non-cumulative basis (week 1/month 1 basis).

A refund of tax should not be made to the employee where a temporary tax deduction card is in use.

The temporary procedure continues until a tax credit certificate is received from Revenue.

Note: An employer who took on an employee at the end of say 2008 who produced a 2008 P45 and for whom a tax credit certificate has not yet issued for 2009 may continue to use the tax credit and standard rate cut-off point as per the 2008 P45 in 2009.

8. Emergency basis

The circumstances in which the employer will use the emergency basis are described in Employer's PAYE records part 9.2.

The current emergency tax rates are published on the Revenue website.

Different rules for emergency tax apply depending on whether or not the employee has provided the employer with their PPS number.

Where the employee does not provide their PPS number

Where the employee does not provide their PPS Number, the higher rate of tax applies to all earnings.

Tax credits and standard rate cut-off point for employees that have not provided their PPS number
Week or month Standard rate cut-off point Tax credit
All Nil Nil

If a new employee does not hold a PPS number they should be advised to call in person to any Social Welfare Local Office and ask for Leaflet SW100 to apply for a PPS number.When they have been allocated their PPS number from the Department of Social Protection, the Revenue pdfForm 12A - 'Application for a Certificate of Tax Credits and Standard Rate Cut-Off Point' (PDF, 324KB) should be completed and sent to Revenue.

Where the employee provides their PPS number

Where the employee provides their PPS number the provisional tax credits and standard rate cut-off point to be granted are as outlined in the following tables for weekly, monthly, fortnightly, four-weekly and twice-monthly paid employees.

Weekly Paid
Week of employment Weekly standard rate cut-off point Weekly tax credit
First 1/52nd of single personal standard rate cut-off point 1/52nd of single personal tax credit
Second As for first week As for first week
Third As for first week As for first week
Fourth As for first week As for first week
Weeks 5 to 8 inclusive As for first week Nil
Week 9 and subsequent weeks Nil Nil

The rates at which tax is to be deducted are the rates of the standard rate of income tax and the higher rate of income tax in force for the relevant year.

Provisional tax credit for employees who get paid monthly
Month of employment Month standard rate cut-off point Month tax credit
First 1/12th of single personal standard rate cut-off point 1/12th of single personal tax credit
Second As for first month Nil
Third and subsequent months Nil Nil

The rates at which tax is to be deducted are the rates of the standard rate of income tax and the higher rate of income tax in force for the relevant year.

Provisional tax credit for employees who get paid fortnightly
Fortnightly pay day Fortnightly standard rate cut-off point Fortnightly tax credit
First 2/52nds of single personal standard rate cut-off point 2/52nds of single personal tax credit
Second As for first pay day As for first pay day
Third As for first pay day Nil
Fourth As for first pay day Nil
Fifth and subsequent pay days Nil Nil

The rates at which tax is to be deducted are the rates of the standard rate of income tax and the higher rate of income tax in force for the relevant year.

Provisional tax credit for employees who get paid four-weekly
Four-weekly pay day Four-weekly standard rate cut-off point Four-weekly tax credit
First 4/52nds of single personal standard rate cut-off point 4/52nds of single personal tax credit
Second As for first pay day Nil
Third and
subsequent
pay days
Nil Nil

The rates at which tax is to be deducted are the rates of the standard rate of income tax and the higher rate of income tax in force for the relevant year.

Provisional tax credit for employees who get paid twice-monthly
Twice-monthly pay day Twice-monthly standard rate cut-off point Twice-monthly tax credit
First 1/24th of single personal standard rate cut-off point 1/24th of single personal tax credit
Second As for first pay day As for first pay day
Third As for first pay day Nil
Fourth As for first pay day Nil
Fifth and subsequent pay days Nil Nil

The rates at which tax is to be deducted are the rates of the standard rate of income tax and the higher rate of income tax in force for the relevant year.

Quarterly, half-yearly and yearly paid

For the quarterly, half-yearly and yearly paid, the tax credit to be applied is 1/12th of the single personal tax credit and the standard rate cut-off point is 1/12th of the single personal standard rate cut-off point.

Where an employee without a PPS number subsequently provides one

As outlined previously,where an employee commences employment and does not provide their PPS number the higher rate of tax applies to all earnings. Where the employee subsequently provides their PPS number (while still on emergency basis), the tax credits and standard rate cut-off points to be granted are as outlined in the corresponding pay period in the above tables. The employee's previous pay periods are not recalculated to grant tax credits and standard rate cut-off points for those previous pay periods.

For example, an employee commences a weekly-paid employment and does not provide their PPS number. They will pay tax at the higher rate of tax on all earnings. The employee provides their employer with their PPS number in their 3rd week of employment. For their 3rd weekly pay period tax will be calculated allowing the tax credit and standard rate cut-off point for week 3 as outlined in the above tables. Weeks 1 and 2 will not be recalculated to grant a tax credit or a standard rate cut-off point for those weeks.

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9. Separate periods of employment with one employer treated as one continuous period for emergency basis purposes

It is important to note that where an employee has separate periods of employment with one employer in one income tax year, to which the emergency basis applies, the employment is deemed to commence at the start of the first of these periods and continue to the end of the last period of employment or 31 December whichever is earlier.

Example 3

A weekly paid employee commences work in income tax week 10, leaves in week 14, resumes work with the same employer in week 28 and leaves finally in week 29. The emergency basis applies throughout.

  • Weeks 10, 11, 12 and 13 are the first four weeks of employment for the purposes of the emergency procedure.
  • Week 14 is the fifth week.
  • Week 28 is the nineteenth week (i.e. fourteen weeks after week 14).
  • Week 29 is the twentieth week for the purposes of the emergency procedure.

If the emergency basis is still in operation on the following 1 January, the employee is deemed to start a new period of employment on that date. Deeming an employment to commence and continue in this way is solely for the purpose of reckoning "weeks" or "months" so as to apply the correct emergency tax credits and standard rate cut-off points and tax rates.

Example 4

A weekly paid employee commences work in income tax week 46 and leaves in week 5 of the following tax year. The emergency basis applies throughout.

  • Weeks 46, 47, 48 and 49 are the first four weeks of employment for the purposes of the emergency procedure.
  • Weeks 50, 51 and 52 are weeks five, six and seven for the purposes of the emergency procedure.
  • Weeks 1, 2, 3 and 4 in the new tax year are the first four weeks of employment for the purposes of the emergency procedure. (As stated above, the employee is 'deemed' to start a new period of employment on 1 January).
  • Week 5 is the fifth week for the purposes of the emergency procedure.

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10. Tax exemption and marginal relief

A small number of employees/pensioners are entitled to tax exemption and marginal relief each year.

Any individual/married couple whose total income from all sources is less than or equal to the exemption limit appropriate to them will not have to pay tax for that year.

Any individual/married couple whose total income from all sources is over the exemption limit may qualify for marginal relief. This means that when their wages or pension exceeds a certain limit, they are taxed at 40% instead of the higher rate of tax in operation for that year. If the employee/pensioner is entitled to tax exemption and marginal relief, the higher rate of tax shown on the tax credit certificate will be 40%.

The decision regarding any individual's entitlement to exemption and marginal relief is made by Revenue - not by the employer. The employer must operate PAYE in accordance with the tax credit certificate issued.

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11. Taxation of illness benefit and occupational injury benefit

Illness Benefit (formerly known as Disability Benefit) and Occupational Injury Benefit payable by the Department of Social Protection (DSP) are taxable payments. When an employee is absent from work due to illness and receives or is entitled to receive illness or occupational injury benefit, tax is collected through the PAYE system. These benefits are not however subject to PRSI or USC.

Where an employee becomes entitled to receive such benefits, employers are required to make certain adjustments to their normal PAYE procedures to take account of these benefits. Child Dependant additions (i.e. additional payments made to claimants in respect of qualifying children) are exempt for tax purposes. (Prior to 1 January 2012, the first 6 weeks (36 days) of Illness Benefit and Occupational Injury Benefit payments in the tax year were also exempt for tax purposes).

Note: References to Illness Benefit include Occupational Injury Benefit. Taxable Illness Benefit refers to Illness Benefit payable less any Child Dependant additions.

Notification from the Department of Social Protection

The Department of Social Protection notifies all employers of the amount of the taxable Illness Benefit which an employee is entitled to receive while out sick, and also the date the payment commenced.

Where the employer is not aware of the amount of an employee's Illness Benefit, the basic personal rate of payment (available from www.welfare.ieExternal link) should be assumed until advised otherwise by the Department of Social Protection.

Calculating the amount of taxable Illness Benefit to include with earnings

The taxable Illness Benefit notification issued to employers will state the weekly taxable amount and the date the payment commenced. The following should be noted:

  • No payment is made for the first 3 days of illness
  • No payment is made for any Sunday during the illness period
  • A week’s Illness Benefit represents six days.

Example A

A weekly-paid employee (Friday pay day), is out sick from Monday 12 November 2012. The DSP notification to the employer advises that the amount of taxable Illness Benefit awarded is €188 per week from (Thursday) 15 November 2012.

  • Pay day Friday, 16 November 2012
    Taxable Illness Benefit to be included with earnings: 2 days - Thursday 15 and Friday 16 November:
    €188.00 / 6 x 2 = €62.66
  • Pay day Friday, 23 November 2012
    The employee is still out sick. Taxable Illness Benefit to be included with earnings:
    one full week = €188
  • Pay day Friday, 30 November 2012
    The employee returns to work on Wednesday 28 November. Taxable Illness Benefit to be included with earnings: 3 days - Saturday 24, Monday 26, and Tuesday 27 November (No payment is made for Sunday).
    €188.00 / 6 x 3 = €94.00

Example B

A weekly-paid employee (Saturday pay day), is out sick from Monday 12 November 2012. As the employer has not been notified of the amount of taxable Illness Benefit awarded, he/she assumes the basic personal rate of payment - €188 per week in 2012. As no Illness Benefit payment is made for the first 3 days of illness, the employer takes Thursday 15 November as the date of first payment.

  • Pay day Saturday, 17 November 2012
    Taxable Illness Benefit to be included with earnings: 3 days - Thursday 15, Friday 16, and Saturday 17 November:
    €188.00 / 6 x 3 = €94.00
  • Pay day Saturday, 24 November 2012
    The employee returns to work on Tuesday 20 November. Taxable Illness Benefit to be included with earnings: 1 day - Monday 19 November (No payment is made for Sunday).
    €188.00 / 6 x 1 = €31.33

Example C

A fortnightly-paid employee (Thursday pay day), is out sick from Monday 12 November 2012. The DSP notification to the employer advises that the amount of taxable Illness Benefit awarded is €188 per week from (Thursday) 15 November 2012.

  • Pay day Thursday, 22 November 2012
    Taxable Illness Benefit to be included with earnings: 7 days - Thursday 15 to Thursday 22 November incl. (No payment is made for Sunday).
    €188.00 / 6 x 7 = €219.33
  • Pay day Thursday, 6 December 2012
    The employee returns to work on Monday 3 December. Taxable Illness Benefit to be included with earnings: 8 days - Friday 23 to Saturday 1 December inclusive (No payment is made for Sunday).
    €188.00 / 6 x 8 = €250.66

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Action by employers

Employers are to tax Illness Benefit by including the taxable amount with earnings – see example 5 hereunder. Prior to 1 January 2012, employers had the choice to tax DSP paid Illness Benefit by reducing employees' tax credits and Cut-Off Points. This option is no longer applicable from 1 January 2012.

How Illness Benefit is included in payroll will depend on the particular circumstances or arrangements between employers and employees while employees are out sick. These arrangements are set out in the following paragraphs.

Employers who pay wages, salary, etc., to employees while out sick and recover the Illness Benefit or Occupational Injury Benefit from the employees

The arrangement between these employers and employees will be such that the employer will be aware of:

  • the date the employee went out sick
  • the date from which Illness Benefit or Occupational Injury Benefit became payable
  • the amount of the taxable Illness Benefit.

Such employers should take appropriate action without reference to the notification from the Department of Social Protection, as they will already have all the relevant information to tax the Illness Benefit in payroll. The taxable amount of the Illness Benefit should be included with earnings.

USC and PRSI should only be charged on the difference between the wages, salary etc., and the amount of Illness Benefit received. While Illness Benefit less Child Dependant additions is taxable, it is not chargeable to USC or PRSI.

Employers who pay wages, salary etc., to employees while out sick (top-up etc.) and the employees retain the Illness Benefit or Occupational Injury Benefit

Where an employer pays the employee's full or partial wages while out sick and the employee retains the Illness Benefit, the employer should include the taxable Illness Benefit with earnings.This will have the effect of maintaining the cumulative system of PAYE. Under such a procedure the combined amount is chargeable to tax but only the actual (top-up) earnings paid by the employer is chargeable to USC and PRSI.

Example 5

An employee earns €740 per week.

(for the purpose of this example, the employee pays €40 superannuation each week)

The employer will apply PAYE/USC/PRSI in payroll as follows:

Example of tax credits and cumulative credits
Week no. Pay This Period Cumulative Gross Pay for Tax purposes
(Pay less superannuation contributions)
Cumulative Gross Pay for USC purposes Gross Pay for PRSI purposes
12 Normal pay - 740 8,400
(700 x 12)
8,880
(740 x 12)
740

The employee is out sick in weeks 13 and 14 and receives taxable Illness Benefit of €188 per week. The employer tops up his wages in full for the duration of his sick leave and includes the taxable Illness Benefit with the employee's earnings as follows:

Example of tax credits and cumulative credits
Week no. Pay This Period Cumulative Gross Pay for Tax purposes
(Pay less superannuation contributions)
Cumulative Gross Pay for USC purposes Gross Pay for PRSI purposes
13 740
(Illness Benefit 188 plus Pay top-up 552)
9,100
(700 x 12) + [(188 + 512) x 1]
9,432
(740 x 12) + (552 x1)
552
14 740
(Illness Benefit 188 plus Pay top-up 552)
9,800
(700 x 12) + [(188 + 512) x 2]
9,984
(740 x 12) + (552 x 2)
552

The employee returns to work in week 15.

Example of tax credits and cumulative credits
Week no. Pay This Period Cumulative Gross Pay for Tax purposes
(Pay less superannuation contributions)
Cumulative Gross Pay for USC purposes Gross Pay for PRSI purposes
15 Normal pay - 740 10,500
(700 x 12) + [(188 + 512) x 2]+ (700 x 1)
10,724
(740 x 12) + (552 x 2) + (740 x 1)
740

The employee does not receive any further payments of Illness Benefit from DSP in 2012. The P60 and P35L for the year ending 31 December 2012 will show the following taxable pay and Illness Benefit details:

  • Total Taxable Pay: €36,400 [700 x 50 plus (188 + 512) x 2]
  • Amount of taxable Illness Benefit: included in Taxable Pay figure - €376 (188 x 2)

Employers who do not pay wages, salary etc., to employees while out sick and the employee retains the Illness Benefit or Occupational Injury Benefit

Even though some employers do not pay wages, salary, etc. to employees while out sick, they are still notified by the Department of Social Protection of the amount of the taxable Illness Benefit an employee is entitled to receive while out sick. They should include this amount with earnings when the employee returns to work. Where an employee does not return to work before 31 December, the employer should include the amount of the taxable Illness Benefit on the P35 and P60.

Example

An employee is out sick from 1 December 2013 and is not paid by the employer while on sick leave. In the absence of a notification from DSP, the employer assumes that the employee is receiving €188 per week taxable Illness Benefit. At 31 December the employee is still out sick. When completing the 2013 P35L and P60, the employer should include an amount of €752 (€188 x 4 weeks) taxable Illness Benefit.

Tax documents

P60, P35L and P35L/T

The 2012 P60, P35L and P35L/T will show earnings inclusive of taxable Illness Benefit and a new dedicated field for taxable Illness benefit.

P45

Taxable Illness Benefit should be included in the Pay figure and also shown in section (d) ‘Total amount of taxable Illness Benefit included in pay figure above’. Section (e) and (f), (reducing tax credits and Cut-Off Points) should NOT be used with effect from 1 January 2012.

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12. Jobseeker's benefit

A portion of Jobseeker's Benefit (formerly known as Unemployment Benefit) is taxable. This will not affect employers as Revenue will collect any tax due.

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13. Treatment of Maternity, Adoptive and Health & Safety Benefits

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.

Note: employers are to continue to tax Illness Benefit by including it with earnings.

Action by employers

How Maternity Benefit affects payroll will depend on the particular circumstances or arrangements between employersand employees while employees are out on maternity leave. These arrangements are set out in the following paragraphs.

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.

Example

An employee is out on maternity leave from 1 July 2013 and receives their normal gross salary of €700 per week. Maternity Benefit of (say) €230 per week is paid directly to the employer (or handed over in full by the employee to the employer).

Revenue receives notification of the Maternity Benefit from the DSP, reduces the tax credits and cut-off point by the appropriate amount, and issues a revised P2C to the employer.

The employee's weekly salary of €700 paid over by the employer to the employee is effectively made up of:

Maternity Benefit	 €230
Company salary    	 €470
               	         €700
 

Revenue have taxed the Maternity Benefit by reducing the employee's tax credits and cut-off point. Maternity Benefit is not subject to USC or PRSI.

The company salary portion (€470) is chargeable to tax, USC, Employee PRSI and Employer PRSI.

Maternity Benefit is not included on forms P45, P60 or P35L.

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.

The position is similar to that outlined in the example immediately above.

Example

An employee is out on maternity leave from 1 July 2013. She retains the Maternity Benefit of (say) €230 per week paid directly to her by the DSP. As her normal gross salary is €700 per week, her employer tops up her salary to this amount.

Maternity Benefit (paid directly to the employee)	 €230
Company salary top-up    	                         €470
               	                                         €700
  

Revenue receives notification of the Maternity Benefit from the DSP, reduces the tax credits and cut-off point by the appropriate amount, and issues a revised P2C to the employer.

Only the company salary portion (€470) is chargeable to tax, USC, Employee PRSI and Employer PRSI and is included on forms P45, P60 or P35L.

Employers who do not pay wages, salary etc., to employees while out on maternity leave and the employee retains the Maternity Benefit

In all cases, Revenue will receive the Maternity Benefit notification from the DSP, reduce the tax credits and tax cut-off point by the appropriate amount, and issue a revised P2C to the employer.

If owing to the absence from work through maternity leave, the employee is not entitled to receive wages, salary, etc., 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. Of course an employer should not make a refund unless they are in possession of a current year cumulative P2C in respect of the employee in question. Where the P2C is on a week 1/month 1 basis, no repayment of tax should be made. In this case the employee can claim any refund due directly from Revenue after 31 December.

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. An employer should not make a refund unless they are in possession of a current year cumulative P2C in respect of the employee in question. Where the P2C is on a week 1/month 1 basis, no repayment of tax should be made. In this case the employee can claim any refund due directly from Revenue after 31 December.

If the period of maternity leave was spread 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.

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