Tax and Department of Social Protection (DSP) pensions

As part of the ongoing exchange of information with the Department of Social Protection, Revenue has received up-to-date information about long-term pension payments - 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.

Income tax legislation provides that a range of benefits payable under the Social Welfare Acts are taxable but anyone over 65 whose annual total income is less than €18,000 if single or €36,000 if married is exempt from income tax.

If someone receiving a long-term 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 other sources of income - say a salary or an occupational pension - they may be liable to tax on the DSP pension.

Some 560,000 records with pension details were sent to Revenue by the DSP and this data has been reviewed and matched to Revenue’s own records. Of these records:

• there is no issue for roughly 325,000 pension recipients as either they have no income apart from their DSP pension, are exempt from tax altogether or the existing Revenue figure matches the DSP figure supplied;
• a further 100,000 records are in respect of people who pay tax on their DSP pension through the self-assessment system;
• approximately 20,000 taxpayers will pay less tax as their DSP pension was overstated on Revenue's records;
• 115,000 taxpayers will pay more tax in 2012 as their DSP pension was:
  • never previously reported by them to Revenue,
  • under-reported, or
  • the taxpayer’s circumstances had changed.

In many of these cases the additional liability will be modest.

In cases where the pension is not on record at all and their other income already brings them into the 41% tax bracket, the annual additional liability could reach €4,400 single and €8,800 for a couple. These cases will already have reasonably significant non-DSP income and at least 2,500 cases have non-DSP income in excess of €50,000. Because the impact for taxpayers will vary depending on their particular circumstances, this is explained in a range of letters that are being issued by Revenue this week. These letters are tailored to that person’s particular circumstances and include advice on contact details if required.

[Ends 05/01/12]