Taxation of maternity leave, adoptive leave and health & safety benefit

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    The taxation of maternity leave, adoptive leave and health & safety benefit was announced in Budget 2013.

    It was proposed by Revenue that, similar to the taxation of illness benefit, employers would be responsible for the identification, taxation and submission of PAYE on these payments to new and expectant mothers from July 1, 2013.

    It was originally proposed that employers would be obliged to identify, calculate and submit the PAYE payable on the benefits, similar to the current system it uses for illness & disability benefit.

    However, due to the nature of the benefit, this proposal put the liability on the employer, who could potentially have been left out of pocket if the employee did have enough tax credit to cover the liability, or if they did not return to work.

    Following lengthy discussions with various payroll professionals and groups, Revenue has accepted that the proposed method of taxing these benefits via employers was not practical, placing a particularly heavy burden on SMEs.

    Revenue confirmed last Wednesday that the taxation of maternity leave, adoptive leave and health & safety leave would be operated through an adjustment to the recipient’s tax credits and standard rate cut off point.

    Employers will receive amended P2Cs to use from July 1, when processing payroll. This should make for a smoother and more practical solution to this additional task.

    Revenue has made the following statement to the Irish Payroll Association:

    ‘‘As part of the ongoing exchange of information arrangements between DSP and Revenue, Revenue will receive the payment details which will be updated onto Revenue’s records.

    ‘‘Individuals who pay their tax through the PAYE system will have their annual tax credits and cut-off point reduced by the amount of these payments.

    Employers/pension providers will be advised of the adjusted tax credits and cut-off points on employer tax credit certificates (P2Cs).

    ‘‘An eBrief will issue to this effect in the next few days. An Employer Notice will also issue as soon as possible.’’

    The treatment of maternity and adoptive leave has been a topic of debate for many employers and the issue requires additional calculation and consideration within the payroll.

    While they are not obliged to do so, some companies choose to pay employees that are out on leave, while others don’t. For the companies that do choose to do so, the payment from the department may be directed to the employee or the employer.

    Taxation of maternity leave, adoptive leave and health & safety benefit - Anne Reilly

    Such issues need to be considered for the purposes of Revenue compliance, so it is important that the people responsible for processing such payments within companies, are aware of the implications of the options available to staff within their business.

    Article from Sunday Business Post 28th April 2013
    Anne Reilly is managing director of Paycheck Plus.

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