Taxation of Illness and Short-term Occupational Injury Benefits - IT 22
Introduction
Illness Benefit (formerly known as Disability Benefit) and short-term Occupational Injury Benefit are taxable sources of income.
Illness Benefit payable for the first 6 weeks of each year and any child dependent element of benefit is exempt from tax.
Note: With effect from 1 January 2012, the tax exemption applicable to the first six weeks of Illness benefit is abolished.
This leaflet explains the tax treatment which applies to persons in receipt of the above benefits. For convenience, references to Illness Benefit in this leaflet also include references to Occupational Injury Benefit, where appropriate.
Are all Illness Benefit recipients taxed in the same way?
For taxation purposes Illness Benefit recipients can be divided into three groups:
- Individuals in employment in receipt of short-term (less than 12 months) Illness Benefit
- Individuals in receipt of long-term (12 months or more) Illness Benefit
- Individuals not in employment and in receipt of short-term (less than 12 months) Illness Benefit.
The taxation treatment for each group is outlined below.
How does taxation work if I receive short-term Illness Benefit while still in employment?
When you are absent from work due to illness and receive Illness Benefit from the Departmemt of Social Protection your employer must take certain steps. These will vary depending on whether or not you are paid by your employer while you are out sick and the type of payroll system your employer is using.
All employers will be aware of the date on which you went out sick, but only some will be aware of the date your Illness Benefit became payable and the make-up of your Illness Benefit payment (i.e. Personal rate, Child Dependant additions, etc.). Remember, the first 6 weeks of Illness Benefit payments are exempt from tax. This is known as the exempt period. Normally your employer will operate one of the following procedures:
- If your employer pays you in this exempt period, you are taxable on any wages, salary, etc. paid excluding the Illness Benefit payment. If your employer recovers the Illness Benefit payment from you, you pay tax on the difference between the wages paid and the Illness Benefit recovered.
- If you are still out sick after the six weeks exemption period expires and your employer
continues to pay you, your employer should include the taxable Illness Benefit payment with
your earnings to date and tax the full amount. To achieve this your employer will either:
- Add the taxable portion of Illness Benefit to your other pay and tax the combined amount or
- Reduce (i) your tax credits by the tax liability on the Illness benefit, and (ii) the Standard Rate Cut-Off Point by the amount of taxable Illness Benefit you receive and use the reduced amounts to calculate your tax.
- If your employer does not pay wages, salary, etc. while you are out sick and you retain your Illness Benefit payment your employer will, after an absence of six weeks, place you on the non-cumulative PAYE system from the date you return to work through to the end of the tax year. Under this system each week’s pay and tax position is looked at separately and settlement of any refund due or underpayment that arises is not possible without contacting your local Revenue Office - see next paragraph.
Your employer will tell you which procedure operates within his/her employment.
What happens if I am not happy with my Tax Credit Cert when I resume work?
If your employer operates procedure (a) or (b), your tax position will normally be in order. But if they operate procedure (c) you may have some unused tax credits if:
- You are not paid by your employer while out sick and the tax liability on your taxable
Illness Benefit is less than your weekly tax credits
or - You are paid part of your wages by your employer while out sick and the tax due on your combined weekly rate of taxable Illness Benefit and pay is less than your weekly tax credits.
In this case, you should notify your local Revenue Office on return to work of the amount of Illness Benefit paid during the period of illness. This will ensure that you get your correct Tax Credit Certificate when you resume work.
How is Long-term Illness Benefit/Occupational Injury Benefit taxed?
If you are in receipt of long-term Illness Benefit/Occupational Injury Benefit you will be treated for tax purposes in the same way as social welfare pensioners i.e.
- Where you or your spouse have a current employment or pension taxed under the PAYE system, your Tax Credit Certificate will be reduced by the amount of taxable benefit for the year
- Where you or your spouse, are taxed under self-assessment you must include the amount of taxable benefit on your annual tax return.
If you are taxed through the PAYE system and your or your spouse’s Tax Credit Certificate have not been adjusted for Illness Benefit/Occupational Injury Benefit or you do not currently make self-assessment returns you must take the following steps:
- If you or your spouse have an employment or pension taxed through the PAYE system, please advise your local Revenue Office about your Illness Benefit/Occupational Injury Benefit income
- If you or your spouse are not taxed through the PAYE system you must consider whether you must make a self-assessment return. Leaflet IT10 “A Guide to Self Assessment” gives full details or is available from our Forms and Leaflets service at LoCall 1890 306 706 (00353 1 702 3050 outside ROI) or any Local Enquiry Office.
What happens if I am in receipt of Illness Benefit for less than 12 months and not in employment?
If you fall within this category the taxable portion of Illness Benefit will be taken into account as income when dealing with any repayment claim you may make.
If you do not make a repayment claim while unemployed the taxable element of Illness Benefit will be taken into account by restricting your cummulative Tax Credit Certificate, or by issuing your Tax Credit Certificate on a non-cumulative basis, as appropriate, when you resume work.
Am I entitled to the PAYE Tax Credit?
Yes, any recipient of Illness Benefit is entitled to the PAYE tax credit unless it has been allowed already against other PAYE income.
Remember
You will not have to pay any tax if your own and your spouse’s total income from all sources does not exceed the exemption limit that applies to you. Details of exemption limits for the current year are given in Leaflet IT1 “Tax Credits, Reliefs and Tax Rates”.
The benefits outlined above are taxable sources of income and must be declared in addition to other sources of income of yourself and/or your spouse on any form from Revenue, including the annual return, which requires details of income to be stated.
Further Information
This leaflet is for general information only. You can get further information by logging on to our website www.revenue.ie or by calling your Regional PAYE LoCall Service whose number for is listed below.
| Region | Area Covered | Telephone No. |
|---|---|---|
| Border Midlands West Region | Cavan, Monaghan, Donegal, Mayo, Galway, Leitrim, Longford, Louth, Offaly, Roscommon, Sligo, Westmeath | 1890 777 425 |
| Dublin Region | Dublin (City and County) | 1890 333 425 |
| East & South East Region | Carlow, Kildare, Kilkenny, Laois, Meath, Tipperary, Waterford, Wexford, Wicklow | 1890 444 425 |
| South West Region | Clare, Cork, Kerry, Limerick | 1890 222 425 |
If you are calling from outside the Republic of Ireland, please phone 00 353 (1) 702 3011.
Revenue Commissioners: February 2007
PDF Version of IT22 - Taxation of Illness and Short-term Occupational Injury Benefits (PDF, 44KB)
While every effort is made to ensure that the information given in this leaflet is accurate, it is not a legal document. Responsibility cannot be accepted for any liability incurred or loss suffered as a consequence of relying on any matter published herein.