Taxation of Welfare Benefits

PAYE Employee

What happens if I am in receipt of short-term Illness Benefit and not in employment?

Illness Benefit and short-term Occupational Injury Benefit are taxable sources of income. However, the child dependent element of the benefit is exempt from tax. If you make a claim for a tax refund while out of work, the taxable portion of the Illness Benefit will be added to your pay and the appropriate refund, if any, will be made. Leaflet IT 22 outlines the Taxation of Illness and Short-term Occupational Injury Benefits

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What happens if I am in receipt of short-term Illness Benefit while still in employment?

If you are absent from work due to illness and receive Illness Benefit, your employer will take the necessary steps to ensure that the taxable portion of the benefit is taxed.

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If I am in receipt of Jobseekers Benefit while unemployed how will this affect my claim for a tax refund?

Jobseekers Benefit is a taxable source of income. However, any child dependent element and the first €13 per week of benefit are exempt from tax. When you make a claim for a tax refund the taxable portion of the Jobseekers Benefit will be added to your pay and the appropriate refund, if any, will be made. You should note that if the weekly amount of your Jobseekers Benefit exceeds your weekly tax credit you will not be entitled to a refund. Leaflet IT 24 outlines the taxation of Jobseekers Benefit.

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Treatment of Maternity Benefit

Maternity Benefit is not regarded as income for the purposes of the Income Tax Acts and should be disregarded for all tax purposes.

Whether the payment must be taken into account by the payroll office will depend on the particular circumstances or arrangements between employers and employees while employees are on maternity leave and in receipt of Maternity Benefit from the Department of Social Protection.

The treatment in specific situations is outlined below:

  1. 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 Department of Social Protection.
    In such circumstances, only the difference between the wages, salary, etc. paid and the Maternity Benefit recovered is subject to tax and PRSI in the pay period.
  2. 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 and PRSI should be charged only on the full amount of wages or salary actually paid.
  3. Employers who do not pay wages, salary etc. to employees while out on maternity leave and the employee retains the Maternity Benefit.
    If the employee is not entitled to any payment on the usual pay day, the employer, if requested by the employee or by someone acting on her behalf, should repay the appropriate amount of tax, having regard to her cumulative pay at that pay day 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, can be calculated having regard to his or her cumulative emoluments at the date of the pay day in question and the corresponding cumulative tax. In this situation the employer should contact the employee's local Revenue office to confirm that it is in order to make such a refund.

    Of course an employer should not make a refund unless he/she is in possession of a current year cumulative Tax Credit Certificate in respect of the employee in question.

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