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Maternity Benefit – tax change from 1st July 2013

Treatment of Maternity Benefit, Adoptive Benefit and Health & Safety Benefit

In his Budget speech in December 2012 the Minister for Finance announced that Maternity Benefit, payable by the Department of Social Protection (DSP) from 1 July 2013 would be liable to tax, but, similar to other DSP type payments, would not be liable to Universal Social Charge (USC) or Pay Related Social Insurance (PRSI). The legislation giving effect to the Minister’s announcement is included in Section 8 of the Finance Act 2013. The legislation refers to the taxation of Maternity Benefit, Adoptive Benefit and Health & Safety Benefit (including any increases for adults and child dependants) payable by the DSP.

Maternity Benefit, payable for periods prior to 1 July 2013, remain exempt from tax, USC and PRSI. The position in relation to Maternity Benefit Payable for periods prior to 1 July 2013 is set out in the Taxation of Maternity Benefit, Adoptive Benefit, and Health & Safety Benefit payable up to 30 June 2013 section.

Individuals who pay their tax through the PAYE system will, where possible, automatically have their annual tax credits and rate bands reduced by the amount of these payments.

Employers will be advised of the adjusted tax credits and rate bands on employer tax credit certificates.

The treatment in specific situations from 1 July 2013 is outlined below:

1. Employees who receive full wages, salary, etc., as normal while out on maternity leave and hand-over or mandate  the Maternity Benefit directly to their employer.

Revenue will adjust the employee’s tax credits and rate band by the amount of Maternity Benefit payable by the DSP and in this way collect the tax on the Benefit payable. In such circumstances, only the difference between the wages, salary, etc. paid and the Maternity Benefit recovered is subject to tax, USC and PRSI by the employer in the pay period.

2. Employees who receive full or ‘top-up’ wages, salary etc., while out on maternity leave  and the employee retain the Maternity Benefit

Where an employee receives full or partial (‘top-up’) wages or salary while out on maternity leave and the employee retains the Maternity Benefit, tax, USC and PRSI is charged by the employer only on the amount of wages or salary actually paid by the employer.

3. Employees who do not receive wages, salary etc., from their employer while out on maternity leave and the employee retains the Maternity Benefit

Revenue will receive the Maternity Benefit notification from the DSP and will reduce the tax credits and rate band of the employee by the Maternity Benefit amount, and issue a revised tax credit certificate to the employer.

If the employee is not entitled to any pay on the usual pay day, the employee may contact her employer to request repayment of any tax that might be due, 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 by the employer having regard to the employee’s cumulative pay at the date of the pay day in question and the corresponding cumulative tax.

For further information go to: http://www.revenue.ie/en/personal/faqs/taxation-welfare-benefits.html#section4