Taxation of social welfare payments

Taxation of Maternity, Paternity, Adoptive, and Health and Safety Benefits

From 1 July 2013, the following social welfare payments (including any increases for adult and child dependants) are liable to Income Tax (IT) but not Universal Social Charge (USC) or Pay Related Social Insurance (PRSI):

  • Maternity Benefit
  • Adoptive Benefit
  • Health and Safety Benefit.

In the rest of this section, references to Maternity Benefit include these other benefits, as the tax treatment is similar.

Paternity Benefit is dealt with separately.

How Maternity Benefit is taxed

The Department of Employment Affairs and Social Protection (DEASP) gives Revenue details of Maternity Benefit payments. If you receive Maternity Benefit and you are a Pay As You Earn (PAYE) taxpayer, we collect the tax due on the Maternity Benefit by reducing your tax credits and rate band to take account of the payments. This will be shown on your Tax Credit Certificate (TCC).  We will also send a revised TCC showing total tax credits and rate bands, to your employer.

How the tax credits and rate band are adjusted is shown in the detailed examples 3 and 4 below.

Although all of the Maternity Benefit will be taxed, employees receiving Maternity Benefit can choose to:

  • pay it over to their employer, or ‘mandate’ that the DEASP pays it directly to their employer
  • or
  • keep it.

If you receive full wages while on maternity leave and pay over the Maternity Benefit to your employer

To collect the IT on your Maternity Benefit, we reduce your tax credits and rate band. Only the difference between the wages you receive and the Maternity Benefit you pay over to your employer is subject to IT, USC and PRSI.

If you do not receive wages while on maternity leave but keep the Maternity Benefit

We reduce your tax credits and rate band by taking account of the Maternity Benefit and send a revised Tax Credit Certificate to your employer on a Week 1 basis.

You may be entitled to a tax refund. But because the Tax Credit Certificate is on a Week 1 basis, your employer cannot make this refund. You should contact your Revenue office to see if a Tax Credit Certificate can be issued on a ‘cumulative’ basis. If not and if you are still on the Week 1 basis at the end of the tax year, you should submit an online Form 12, which is available on PAYE services in myAccount and we will review your tax position.

Detailed examples of how Maternity Benefit is taxed

We adjust your annual tax credits and rate band to collect the full amount of tax due on a weekly basis. First, we ‘annualise’ the weekly amount of Maternity Benefit payable, and then we divide this by 52 to give the weekly figure. Although a notional ‘annualised’ figure is used, only the actual amount of weekly Maternity Benefit received will be taxed in this way.

The weekly adjusted tax credit and rate band apply for the duration of the Maternity Benefit payments only. They are readjusted after the last payment is received, when the Maternity Benefit weekly element is removed from the weekly tax credits and rate band.

How this works is shown in the following examples, where the employer:

  • pays wages while the employee is on maternity leave
  • does not pay wages while the employee is on maternity leave.

Couples taxed under joint assessment

Examples 3 and 4 above are based on a single person’s basic tax credits and rate band. If you are taxed under joint assessment and you do not have enough tax credits and rate band to allow collection of the full amount of tax on Maternity Benefit, we collect the balance by reducing your spouse’s or civil partner’s tax credits and rate band.

Maternity Benefit claims that span two tax years

Maternity Benefit payable in Year 1 is taxed as shown in Examples 3 and 4 above. Maternity Benefit payable in Year 2 is taxed by reducing the tax credits and rate band, on a ‘cumulative’ basis, from the beginning of Year 2. This means that tax due on the Maternity Benefit for Year 2 is spread over the full tax year.

Taxation of Paternity Benefit

Paternity Benefit (including any increases for adult and child dependants) is liable to IT but not USC or PRSI.

The DEASP gives us details of Paternity Benefit payments.

If you are a PAYE taxpayer, we collect the tax due on Paternity Benefit by reducing your tax credits and rate band to take account of the payments. This will be shown on your Tax Credit Certificate and on the one your employer receives.