Maternity Leave paymentRevenue have issued guidance on the changes to the treatment of Maternity Benefit. We have abbreviated the information to help you understand the impact of Maternity Benefit on you and your employees.

    In the examples we provide, you can see how Revenue annualise the Social Welfare Benefit (SWB) for qualifying Maternity Leave Benefit when reducing the credits and how, if the employee is jointly assessed, their partner may have to take the balance if they do not have sufficient credits. Another interesting point is that an employee can get a cumulative cert on return to work if they request it but they need to ensure it is only reduced by the SWB value received. Most employees will be issued on a wk 1 basis for the year which means anyone on maternity leave should contact Revenue at the end of the tax year for a refund.

     

    Example 1 - Employer continues to pay salary while the employee is on maternity leave

    Anne is employed by ABC Ltd and earns €700 per week. The tax credit certificate which issued to her employer at the start of 2013 shows the following total tax credits and 20% rate band are to be applied from 1 January 2013:

    Annual and Weekly Tax Credits and Rate Band
      Annual Weekly
    Tax Credits €3,300* €63.47
    Rate Band €32,800* @ 20% Balance @ 41% €630.77 @ 20% Balance @ 41%

    *Estimated for the purpose of this example.

    Anne is on maternity leave from 13 April 2013. As she qualifies for Maternity Benefit payments from DSP she receives (say) €262 per week which she has agreed to mandate directly to her employer. Anne’s employer continues to pay her normal gross pay of €700 per week while she is out on maternity leave (i.e. Maternity Benefit plus 'top-up' salary).

    • Maternity leave period 13 April 2013 to 30 June 2013 (11 weeks) - Maternity Benefit payments payable up to 30 June 2013 are not liable to tax.
    • Maternity leave period 1 July 2013 to 14 October 2013 (15 weeks) - Maternity Benefit payments payable from 1 July 2013 are liable to tax.

    From 1 July 2013, Revenue receive Anne’s Maternity Benefit details directly from the DSP and reduce her annual tax credits and rate band by the Maternity Benefit amount, as follows:

    Weekly Maternity Benefit:          €262

    This weekly figure is 'annualised': €262 x 52 weeks = €13,624

    Reduce the 20% Rate Band

    Current rate band                  €32,800

    Less Maternity Benefit             €13,624   (annualised – notional)

    Revised rate band                  €19,176

    Reduce the tax credits

    Current tax credits               €3,300.00

    Less Maternity Benefit x 20%      €2,724.80 (€13,624 x 20%)(annualised – notional)

    Revised tax credits               €  575.20

    Revenue send a revised tax credit certificate (on a 'Week 1 basis') to Anne’s employer, showing the following tax credits and rate band to be applied from 1 July 2013:

    Annual and Weekly Tax Credits and Rate Band
      Annual Weekly
    Tax Credits €575.20 €11.07
    Rate Band €19,176.00 @ 20% Balance @ 41% €368.77 @ 20% Balance @ 41%

    This tax credit certificate is issued on a 'week 1 basis', which means that the employer is to apply this in payroll on a week by week basis and is not to back date it to 1 January 2013. In this way the notional annualised figure is restricted to a weekly adjustment for the duration of the Maternity Benefit payment only.

    Anne’s first pay day in July 2013 is Friday 5 July. She receives her 'normal' gross pay of €700 amount from her employer (with the Maternity Benefit having been mandated directly to the employer). This €700 is effectively made up of:

    Maternity Benefit   €262       Tax collected by reducing tax credits and rate band

    ABC Ltd Salary     €438       Chargeable to tax

    Total               €700

    The difference between the €700 salary paid and the €262 Maternity Benefit paid to the employee (i.e. €438) is subject to tax, USC and PRSI in the usual way. The Maternity Benefit portion (i.e. €262) is subject to tax but not to USC or PRSI. Anne’s employer applies the revised tax credit certificate and calculates her tax as follows:

    Gross Tax

    €368.77 @ 20%                  €73.75

    € 69.23 @ 41%                  €28.38

    €438.00                        €102.13

     

    Less Tax Credits                                 €11.07

    Net Tax payable                                  €91.06

     

    Note for couples who are taxed under joint assessment

    The above example used sample annual tax credits of €3,300 and a rate band of €32,800. Where the individual in receipt of Maternity Benefit payments does not have sufficient tax credits and rate band to collect the full amount of tax due on the Maternity Benefit, and where joint assessment applies, the balance will be collected from their spouse or civil partner by reducing their spouse’s or civil partner’s tax credits and rate band.

     

    At end of Maternity Benefit period

    In October 2013, DSP notifies Revenue that Anne’s Maternity Benefit payments have now ceased. Revenue adjust Anne’s weekly tax credit / rate band record by removing the weekly Maternity Benefit amount.

    Revenue send a revised tax credit certificate (on a 'Week 1 basis') to Anne’s employer, showing the following tax credits and rate band to be applied from 14 October 2013:

    Annual and Weekly Tax Credits and Rate Band
      Annual Weekly
    Tax Credits €3,300* €63.47
    Rate Band €32,800* @ 20% Balance @ 41% €630.77 @ 20% Balance @ 41%

    *Estimated for the purpose of this example.

    This tax credit certificate is issued on a 'week 1 basis', which means that the employer is to apply this in payroll on a week by week basis and is not to back date it to 1 January 2013.

    Anne returns from her maternity leave on 14 October 2013. Her first pay day after returning to work falls on 18 October 2013. Her gross pay is €700. Her employer calculates her tax as follows:

    Gross Tax

    €630.77 @ 20%                  €126.15

    € 69.23 @ 41%                  €28.38

    €700.00                             €154.53

     

    Less Tax Credits                                           €63.47

    Net Tax payable                                           €91.06

    Anne’s full gross pay of €700 is liable to USC and PRSI as normal.

     

     

    3. Employers who do not pay wages, salary etc. to employees while out on maternity leave and the employee retains the payments.

    If the employee is not entitled to any pay 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 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.

    It is important that an employer does 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.

    For further details on the treatment of Maternity Benefit visit

    http://www.revenue.ie/en/personal/faqs/taxation-welfare-benefits.html#section4

    or contact the PayrollTeam at PaycheckPlus to find out how we can help you by Making Payroll Easy.

    Topics: Blog, Maternity Benefit, Maternity Leave, News, Tip of the Month

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