Understanding Illness Benefits

    Illness Benefits are afforded to Irish citizens by the Department of Social Protection if a person is unable to work due to an illness.  The Illness benefit is only applicable to those under the age of 66 and who are covered under PRSI.

    As of 1 January, 2012, it was announced that Illness Benefits are to be taxed from the first day of payment. Prior to this change, the first 6 weeks were exempt from tax.

    There is no provisions regarding sick leave entitlement, and whether an employee receives payment from his employer when absent due to illness is totally at the discretion of the employer, unless such a payment is specifically provided for in the person’s contract, or terms and conditions of employment.

    Certain sectors of employment are covered by Employment Regulation Orders or Registered Employment Agreements, which provide enforceable rates of pay and terms and conditions of employment these sectors have statutory sick leave provision included in their terms of employment.

    Illness Benefit is payable by the Department of Social & Family Affairs when a person is unable to work due to illness. To qualify for illness benefit, a person must be under 66 years of age and must meet certain PRSI contributions.

    Taxation of Illness Benefit

    There are a number of options for the taxation of Illness Benefit.

    1.  The Taxable Illness Benefit should be added to the employee’s cumulative pay taxed accordingly - Add as additional pay and apply PAYE only to the Illness Benefit amount.

    2.  The employer can reduce the employee’s annual SRCOP by the amount of his Illness Benefit and reduce the employees Tax credits by 20% of the Illness Benefit amount. The employer should then continue to operate the cumulative basis.   Notify Revenue about reduction

    3.  The employer can exclude the taxable Illness Benefit and put the employee on a week/month 1 basis for the remainder of the year, from the date the employee returns to work.   The employee should than contact their local Revenue to have their tax certificate adjusted to reflex the amount of illness benefit received.  If a new tax certificate is received for the employee later in the same tax year, the employer should apply the new cert unless the matter has been first cleared with Revenue.

    For more information on understanding Illness Benefits, contact Paycheck Plus for a consultation.

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