March 2013 – Employer Tip – Maternity Leave Payments to be taxed by Employers
ER Tip for March – Maternity Leave Payments from Social Welfare will be taxable by the employer from 1st July 2013.
Taxation of Maternity Leave Benefit – Maternity Benefit will become liable to PAYE from 1st July 2013, however will be exempt from PRSI and USC. The taxation will apply to all Maternity Benefit effective 1st July 2013, regardless of when the Maternity Benefit commenced is claimed.
The Irish Payroll Association along with most employers and payroll processers hope that Revenue will assume responsibility for the taxation of this payment by way of reducing the employee’s SRCOP and tax credits. They will need the relevant information from DSP to do so. However Revenue do not believe this will be possible by 1st July.
Therefore Maternity Benefit will be subject to tax in a similar manner to Illness Benefit. That means that employers will be responsible to tax this payment to employees through the payroll. If the employee is not being paid by the employer while on Maternity leave and does not have sufficient tax credits to cover the payment, this could result in a negative pay situation. The employer will have to revert to applying Week 1 basis for the employee. It has been suggested that the relevant documentation (i.e. P45, P60 and P35L) will be amended to record taxable Maternity Benefit. It appears that there are still many issues to be resolved on this topic but time is ticking. Employers are responsible for the identification, taxation and submission of tax on so many payments and benefits but Revenue should ensure that they have the correct information and guidelines to do so.
If your employees are going on Maternity Leave, please ensure to make the Payroll Team aware of the start date of the expected date of confinement so that we can assist you in the correct treatment of this entitlement.