Updating of Revenue Records on Department of Social Protection (DSP) Pensioners
Introduction
As part of the ongoing exchange of information arrangements between the Department of Social Protection (DSP) and Revenue, Revenue received information late last year from the DSP of long-term pension payment details covering the State pension, the Transition pension (paid to people aged between 65 and 66), Widow’s/Widower’s/Surviving Civil Partner’s and Invalidity pensions.
If someone receiving a DSP pension has no other sources of income, they will not be liable for income tax on the DSP pension. However if, in addition to the DSP pension, an individual also has an additional source of income – say an occupational pension from a former employer – they may be liable to tax on the DSP pension. A person who is 65 years of age or over in 2012 may have a DSP pension and other income sources but may still not pay any tax if their total income for the year is likely to be less than €18,000, if single, or €36,000, if married.
The means by which a PAYE taxpayer pays income tax on their DSP pension is that Revenue reduces the taxpayer’s annual PAYE tax credits and rate band entitlements and this results in additional tax being stopped by their pension provider on their non-DSP occupational pension.
The long-term pension information received by Revenue from the DSP has been updated into Revenue’s records and PAYE tax credits and rate bands for 2012 have been adjusted for some taxpayers accordingly.
For some taxpayers, they will not notice any difference in the amount of tax they are paying from 2012 onwards simply because the pension information supplied to us by the DSP was the same as the details that Revenue already had, while others will see an increased tax deduction because the pension figure supplied by the DSP was greater than the figure that was already on Revenue records or Revenue had no record previously of that person getting a pension from the DSP. It is also possible that some taxpayers will see a reduction in the tax they are paying from 2012 onwards where the figure Revenue was using was greater than the actual DSP figure.
Revenue Communications approach
Revenue sent a letter on 30 December 2011 to each individual affected by the new pension information having been updated against his or her Revenue records. The letter has been tailored to the person’s particular circumstances.
Miscellaneous Questions & Answers
Q: Are pensions paid by the Department of Social Protection taxable?
A: Income tax legislation provides that a range of benefits payable under the Social Welfare Acts are taxable. Long-term pensions like the contributory old age pension, for example, are consequently taxable. Where a DSP pension is a person’s only source of income, that person will not pay tax on the pension. However, an individual in receipt of a DSP pension who also has a second source of income may indeed be liable for tax.
Q: What has given rise to the change in some taxpayers PAYE tax credits and rate bands for 2012?
A: Revenue is supplied with a variety of pension and income details from the Department of Social Protection (DSP) on a regular basis. Long-term pension information was recently supplied to Revenue and this has been updated onto Revenue’s records for 2012.
Q: Under what legislation is information exchanged between DSP &Revenue?
A: There is legislation that specifically allows the DSP to share their pension and income details with Revenue – Social Welfare Consolidation Act 2005, section 261.
Q: How could it have happened that Revenue was carrying a different figure to the one they have recently been supplied with by the DSP.
A: Up until now, Revenue would have been advised by the taxpayer when they became entitled to the receipt of a DSP pension. Once advised, Revenue would have updated its records with the DSP pension details. However, it is likely that over time, some of the changes that have taken place in the amount of the DSP pension paid to an individual, say because a person’s entitlement increased due to changes in their circumstances, would not have been fully reflected if the pensioner did not advise us of the revised amount and so Revenue’s records might have fallen out of line with the amounts actually paid by the DSP.
Q: How is tax deducted on DSP pensions?
A: No tax is deducted at source by the Department of Social Protection on any pensions they pay. Instead, a DSP pension recipient who pays their tax through the PAYE system will have their annual PAYE tax credits and rate bands reduced which will result in additional tax being stopped from any other income they have. For 2012, pension providers and employers have already been advised of revised tax credit and rate band details reflecting the updated DSP pension amount. As a result, additional tax is deducted by a person’s pension provider or employer from any occupational pension or salary that the person has and this extra tax charge is spread evenly over the course of the year. A self-employed person is obliged to return details of any social welfare pensions that they have on the annual Form 11 return form and they pay tax on any DSP pensions they have when they are making their annual income tax payment.
Q: How can someone pay tax on their DSP pension even though their other income is very low?
A: For 2012, a person is exempt from PAYE if they are 65 years of age or over and their annual total income is less than €18,000 if single, or €36,000 if married. When updating taxpayers’ records with the new DSP pension information, Revenue could not differentiate people who are apparently tax exempt from everyone else so all DSP pension information was updated to Revenue’s records and the result is that annual PAYE tax credits and rate bands have been reduced in these potentially exempt cases also. These revised tax credits and rate bands have been notified to pension providers and employers already. In some cases, the combination of tax credits that a person has will be sufficient to cover any tax due on their non-DSP pension, however in other cases, the value of their credits will not be sufficient and tax will be deducted by their pension provider or employer. The deduction of tax in these cases is only temporary if a person is indeed exempt from tax. We will send a revised instruction to pension providers and employers who will refund any tax that has been deducted.
Q: What is the position with any DSP pension that a person’s husband or wife has, is that taxed?
A: Like DSP pensions in general, this too is taxable. If the amount paid by the DSP includes a portion for someone’s husband or wife and the couple are jointly assessed, the full amount of the DSP pension will be reflected on the Tax Credit Certificate under the assessable spouse.
Q: Will the change in the USC exemption limit that the Minister for Finance mentioned in the Budget affect someone’s position.
A: Firstly, DSP pensions are not liable to USC and so are not taken into account in determining whether the USC exemption applies or not. Regarding the revised exemption limit, if a person’s non-DSP income is likely to be less than the €10,036 limit that applies for 2012, the USC exemption should apply. Revenue has already informed pension providers and employers of those individuals where it is likely that the USC exemption will apply for 2012. However, if you are currently paying USC and your annual non-DSP income for 2012 is less than €10,036, you should contact your local Revenue office.
Q: If too much tax was deducted from your pension because the DSP pension was overstated, when should someone start to get the benefit of the reduction in their taxable pension?
A: People might see a difference in your first pension/salary payment of 2012. In mid-December last year, pension providers and employers were advised of the revised tax credit and rate band details for 2012 that reflects the updated DSP pension amount and this should have the effect of increasing someone’s net pension or salary.
Q: You also promised in your original letter of 30 December 2011 to review the tax affairs for 2011 of those individuals where the DSP pension amount that was held on Revenue's records was greater than the actual amount being paid by the Department of Social Protection and you undertook to make any refunds due. What progress has been made on this?
A: The process of reviewing the tax affairs for 2011 of those individuals is ongoing and will continue over the next number of weeks. Some taxpayers should have already received refunds for 2011 and more are due to issue shortly. Once the end of year return (known as a P35) from employers and pension providers that shows details of pay and tax deducted for the remaining taxpayers involved has been processed, we will carry out an automated review and will issue any refunds that arise as a matter of urgency. In the meantime, anyone who feels they are due a refund because their DSP pension was overstated can claim a review of their 2011 tax affairs by submitting their Form P60 for 2011 to their local Revenue office and we will deal with this request as soon as possible.
Q. I have only been receiving a Social Welfare pension since 2011. What should I do?
A. We will send you a 
Form 12S (PDF, 221KB) (which is a simplified return of income form) and you should send this form, duly completed, to your local Revenue office by 31 October 2012. Revenue will then issue a PAYE Balancing Statement to you for 2011 that will set out your final tax liability for the year. As you are a recent recipient of a DSP pension, you will not be liable for any penalties and, if you pay any tax due within one month of receiving the PAYE Balancing Statement, you will not be liable for interest either.
Q: Can I get a review of my PAYE (PAYE Balancing Statement) done for 2011 if I require one?
A: Yes. However, the up-to-date DSP pension amount will be taken into account in your Balancing Statement and an undercharge of tax might arise.
Q: Can I get reviews of my PAYE (PAYE Balancing Statements) for any of the four years up to and including 2011 if I require them say to claim Health Expenses for prior years?
A: Yes. However, the up-to-date DSP pension amount will be taken into account in your Balancing Statements for all relevant years and undercharges of tax might arise.
Q: What should I do if I received a Form 12 tax return from Revenue for a prior year(s) and didn’t complete it and send it back?
A: We will write to you directly and supply you with relevant copies of the Form 12S (PDF, 221KB) – a simplified return of income form - for completion. If you complete these and send them back to us immediately, penalties will not apply if all else is in order. Revenue will then issue you with a PAYE Balancing Statement(s) for the relevant year(s) and you should pay any tax due within one month to avoid interest charges.
Q: What should I do if I sent in a Return Form 12/Form 11 to Revenue for prior years and didn't include my DSP pension details?
A:You should, as a matter of urgency, and in order to minimise any potential additional charges for penalties, notify Revenue in writing of your oversight by completing the attached Disclosure Statement (PDF, 18KB) and include the amount that you neglected to show on your Return of Income for the relevant year(s). Revenue will then issue you with a PAYE Balancing Statement(s) for the relevant year(s) and you should pay any tax due within one month to avoid interest charges. If you are unsure about which tax returns you submitted and overlooked to include the relevant DSP pension amount, you should contact your local Revenue office for clarification.
Q: What should I do if my circumstances are not covered in any of the previous scenarios outlined?
A: There is no need to do anything at the moment and Revenue may be in touch with you. In the meantime, neither interest nor penalties are accruing on any undercharge that might apply.
Q: What is the position for a person receiving DSP pension to claim entitlement to the PAYE Tax Credit?
A: In order to qualify for entitlement to the PAYE Tax Credit, a person must have PAYE income in his/her own right. This is the case for all taxpayers and not only for persons who receive a pension from the DSP.
Q: What is my entitlement to the PAYE Tax Credit if I am a single person, a widowed person or a surviving civil partner?
A: For a single person, a widowed person or a surviving civil partner who has a DSP pension, the position is that they are entitled to the full PAYE tax credit (currently €1,650 per annum) provided their total income for the year exceeds €8,250.
Q: What are our entitlements to the PAYE Tax Credit if we are a married couple or are civil partners and we both have a DSP pension in our own right?
A: For married couples and civil partners who both have DSP pensions in their own right, both spouses/civil partners are entitled to the full PAYE tax credit for the year provided their total income in their own right (including their DSP pension) for the year exceeds €8,250.
Q: What are our entitlements to the PAYE Tax Credit if we are a married couple or are civil partners and only one of us is entitled to claim the full State pension plus a payment from the DSP in respect of an Increase for a Qualified Adult?
A: Where one spouse/civil partner receives the full State pension, they are entitled to the full PAYE tax credit provided their income for the year exceeds €8,250. A second PAYE tax credit is not due simply because the Increase for a Qualified Adult payment is paid directly to the Qualified Adult.
Q: Are Social Welfare/Social Security pensions paid from another country taxable here?
A: Yes. Irish resident individuals are taxable here on any Social Security pensions they receive from another jurisdiction and any such amounts received should be notified to Revenue.
Q: Are occupational pensions paid by an employer/pension provider in another country taxable here?
A: Yes. Irish resident individuals are taxable here on any occupational pensions they receive from another jurisdiction and any such amounts received should be notified to Revenue.
Q: What Social Protection payments, including pensions, are taxable include:
A: Pensions and other payment liable to tax are shown below:
- State Pension (Contributory)
- State Pension (Non-Contributory)
- State Pension (Transition)
- Illness Benefit
- Invalidity Pension
- Occupational Injury Benefit
- Interim Disability Benefit
- Disablement Benefit (when payable in the form of pension rather than as a one off payment)
- Death Benefit Pension
- Widow's/ Widower's or Surviving Civil Partners (Contributory) Pension
- Widows’/Widowers’ or Surviving Civil Partners (Non-Contributory) Pension
- Deserted Wife's Benefit
- Deserted Wife's Allowance
- Prisoner's Wife's Allowance
- One-Parent Family Payment (Unmarried parent, Separated Spouse, Prisoner’s Spouse)
- Guardian’s Payment (Contributory)
- Guardian’s Payment (Non-Contributory)
- Carer’s Allowance
- Carer’s Benefit
- Jobseeker's Benefit and Short-Term Enterprise Allowance, excluding Jobseeker’s Benefit paid to systematic short-term workers
- Unemployability Supplement (payable with Disablement Pension)
- Blind Pension
- Constant Attendance Allowance (payable with Disablement Pension)
Note: In the case of jobseeker's benefit, illness benefit, interim disability benefit and occupational injury benefit any child dependent element is exempt from tax. Up to and including the 2011 tax year the first 36 days injury of illness benefit, interim disability benefit and occupational injury benefit were exempt from tax. However, with effect from 1 January 2012 this exemption no longer applies to illness benefit, interim disability benefit and occupational injury benefit.
The first €13 per week of jobseeker’s benefit and short-term enterprise allowance is exempt from tax.
Last Updated: 23/04/2012