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Maternity Benefit Revenue Guidelines

Maternity Benefit – Revenue Guidelines explained

Maternity Benefit Guidelines

In this article we provide a quick overview of what maternity benefit is and use examples to illustrate how it is calculated.

Maternity Benefit Guidelines

What is Maternity Benefit?

Maternity Benefit is a payment made by the Department of Social Welfare to women who take Maternity Leave from work and are covered by social insurance (PRSI). Maternity Benefit is liable to Income Tax but not liable to Universal Social Charge (USC) or Pay Related Social Insurance (PRSI).

 

How is Maternity Benefit Calculated?

In the example we provide below, you can see how Revenue annualise the Social Welfare Benefit (SWB) for qualifying Maternity Leave Benefit when reducing the credits and rate band.

 

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

Anne is employed by ABC Ltd and earns €700 per week. The RPN which was issued to her employer at the start of 2022 shows the following total tax credits and 20% rate band are to be applied from 1st January 2022:

 

Annual and Weekly Tax Credits and Rate Band
  Annual Weekly
Tax Credits €3,400* €65.38
Rate Band €36,800* @ 20%
Balance @ 40%
€707.69 @ 20%

Balance @ 40%

 

*Estimated for the purpose of this example.

Anne is on maternity leave from 1st February 2022. As she qualifies for Maternity Benefit payments from the DSP she receives €250 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).

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:                       €250

This weekly figure is ‘annualised’:     €250 x 52 weeks = €13,000

 

Reduce the 20% Rate Band

 

Current rate band:                       €36,800

Less Maternity Benefit:             €13,000 (annualised – notional)

Revised rate band:                       €23,800

 

Reduce the tax credits

 

Current tax credits:                                     €3,400

Less Maternity Benefit x 20%:               €2,600 (€13,000 x 20%) (annualised – notional)

Revised tax credits:                                     €800

 

Revenue send a revised RPN (on a ‘week 1 basis’) to Anne’s employer, showing the following tax credits and rate band to be applied from 1st February 2022:

 

Annual and Weekly Tax Credits and Rate Band
  Annual Weekly
Tax Credits €800 €15.39
Rate Band €23,800 @ 20%
Balance @ 40%
€457.69 @ 20%
Balance @ 40%

 

This RPN 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 1st January 2022. 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 February 2022 is Friday 4th February. 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:        €250     Income tax collected by reducing tax credits and rate band

ABC Ltd Salary:              €450     Liable to Income Tax, USC and PRSI as normal

Total:                                   €700

 

The difference between the €700 salary paid and the €250 Maternity Benefit paid to the employee is, the salary of €450 is subject to income tax, USC and PRSI in the usual way. The Maternity Benefit portion of €250 is subject to tax but not to USC or PRSI.

 

Anne’s employer applies the revised RPN and calculates her income tax as follows:

 

Gross Tax:                         €450 @ 20%:                    €90

€0 @ 40%:                         €0

Total:                                   €450                                     €90

Less Tax Credits:                                                           €15.39

Total Tax payable:                                                       €74.61

 

How is Maternity Benefit Calculated for couples who are taxed under joint assessment?

The above example used sample annual tax credits of €3,400 and a rate band of €36,800. 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 or civil partner’s tax credits and rate band.

 

What happens at the end of the Maternity Benefit period?

In August 2022, the DSP notifies Revenue that Anne’s Maternity Benefit payments have now ceased. Revenue adjust Anne’s weekly tax credit and rate band by removing the weekly Maternity Benefit amount.

Revenue send a revised RPN (on a ‘week 1 basis’) to Anne’s employer, showing the following tax credits and rate band to be applied from 1st August 2022:

 

Annual and Weekly Tax Credits and Rate Band
  Annual Weekly
Tax Credits €3,400* €65.39
Rate Band €36,800* @ 20%

Balance @ 40%

€707.69 @ 20%

Balance @ 40%

 

*Estimated for the purpose of this example.

This RPN 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 1st January 2022.

Anne returns from her maternity leave on 1st August 2022. Her first pay day after returning to work falls on 4th August 2022. Her gross pay is €700. Her employer calculates her tax as follows:

 

Gross Tax:                         €700 @ 20%                     €140

€0 @ 40%                          €0

Total:                                   €700                                     €140

Less Tax Credits:                                                           €65.39

Net Tax payable:                                                           €74.61

 

Anne’s gross pay is fully covered by her rate band and therefore she will not pay income tax at the higher rate of €40%

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

What about when employers do not pay wages, salary etc. to employees while out on maternity leave? 

Some employees are not paid by their employer while on maternity leave. These employees may be due a tax refund. The employee will need to contact Revenue directly to see if they can change their RPN from a week 1 basis to a cumulative basis.

 We hope that you have found these Maternity Benefit Guidelines beneficial. For more on Maternity Benefit and related topics check out these articles:

How to Apply for Maternity Benefit

Child Benefit Tax Entitlements

Tax Free Childcare UK Employers

 

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