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How Social Welfare can affect your Tax Bill

Written by Administrator on February 19, 2015

Tax on Social Welfare

Many of our clients have received some sort of social welfare income over the years and it always seems to be a key area of confusion when it comes to how it affects their taxes. Some have gone ahead and requested a P21 to see if they are due a refund, only to receive notification that they owe Revenue additional taxes.

Here, I take a look at four key ways social welfare income can affect your tax bill.

1. Most Social Welfare is Taxable

A common misconception amongst many people is that their social welfare income is not taxable. There are various forms of social welfare payments that are taxable. The table below outlines these payments.

Adoptive Benefit Taxable
Blind Pension Taxable
Carer’s Allowance Taxable
Carer’s Benefit Taxable
Constant Attendance Allowance (payable with Disablement Pension) Taxable
Deserted Wife’s Benefit Taxable
Deserted Wife’s Allowance Taxable
Death Benefit Pension Taxable
Disablement Pension Taxable (except for child increases)
Guardian’s Payment (Contributory) Taxable (on child’s income)
Guardian’s Payment (Non-Contributory) Taxable (on child’s income)
Health and Safety Benefit Taxable (since 1 July 2013)
Illness Benefit Taxable (except for child increases)
Invalidity Pension Taxable
Incapacity Supplement Taxable (except for child increases)
Injury Benefit Taxable (except for child increases)
Jobseeker’s Benefit and Short-Term Enterprise Allowance Taxable (first €13 per week excluded)
Maternity Benefit Taxable (since 1 July 2013)
One-Parent Family Payment Taxable
State Pension (Transition) Taxable
State Pension (Contributory) Taxable
State Pension (Non-Contributory) Taxable
Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) Pension Taxable
Widow’s, Widower’s or Surviving Civil Partner’s (Non-Contributory) Pension Taxable

This is quite a comprehensive list – however, this really only affects people if they have employment and social welfare income which pushes them over the tax free threshold. For example, if you were working 3 days per week and receiving Jobseeker’s Benefit for 2 days, then there is a potential for tax underpayments at the end of the year, as your employer may not have deducted tax to account for your social welfare income.

The belief out there is that your employer has sorted out all your taxes for you, but it is not your employer’s responsibility to adjust your taxes to account for your social welfare income – except for in the case of Illness Benefit.

In short, at the end of the year, if you have been in receipt of any social welfare income from the list above, your social welfare income needs to be added onto your gross employment income in order to calculate your tax bill – and in some cases, you may need to pay Revenue additional taxes.

2. Employer Obligations with Illness Benefit

As I mentioned previously, Illness Benefit is a taxable source of social welfare – but it is dealt with in a slightly different way to other taxable welfare sources. In this case, your employer should include it as part of your gross taxable pay and deduct the relevant amount of tax payable on the benefit.

This should be done by your employer – however in many cases your employer only receives an estimate from Revenue which may not be the exact amount that you received from Social Welfare. So, a review of these figures is worthwhile to ensure that your taxes are correct.

It should also be noted that the child dependent element of the benefit is not taxable.

3. Changes to Maternity Benefit

In Budget 2013, a key change to the Maternity Benefit was made making it liable to tax, although it would not be liable to USC or PRSI.

In most cases, the Department of Social Welfare will share the details of your benefit payments with Revenue and your annual tax credits and rate bands will automatically be reduced.

In the situation where you are receiving full or top-up wages in addition to the Maternity Benefit, Income Tax, USC and PRSI will only be charged on the amount received above the Benefit. Revenue has specific case examples available on their website.

4. USC not chargeable on Social Welfare Income

The other area of confusion is how social welfare impacts USC. In short, it doesn’t. Social Welfare payments are not liable to USC or PRSI.

As you can see, there are a few potential traps that can catch you out when it comes to your tax bill and social welfare income. I’ve seen many cases of people triggering underpayments going back a few years from just requesting a P21 without considering where their income has come from.

If you’d like an expert to review your taxes for you, we’re here to help! Apply now and we’ll send you an application pack.

Sarah Haughney, Tax ManagerWritten by Sarah Haughney

I’m the Tax Manager at Red Oak. We know you’ve got better things to do in your spare time than chase paperwork. That’s why, as a qualified accountant, I ensure my team gets the largest refunds possible for all our clients.

 

Posted Under: Paye Tax, Social Welfare

8 replies to “How Social Welfare can affect your Tax Bill

    1. Post Author Administrator

      Hi Mehret
      Thanks for your message.
      It is impossible to say without reviewing your taxes. The Widows Pension is a taxable form of social welfare, so you need to have been paying tax on this.
      If you would like us to review this for you, please email us at refunds@redoaktaxrefunds.ie for an application form.
      Regards
      Nerilie

      Reply

  1. sean farrell

    employer agrees to pay wages,can i ask s/welfare to pay me injury benefit [due to work accident] and keep payment?. wages+injury benefit [580+350] is this possible? .. thanks.

    Reply

    1. Post Author Administrator

      Hi Sean,

      Thanks for getting in touch. That would be something that you would need to contact Social Welfare about, it is not something we deal with ourselves.

      All the best,
      Ray

      Reply

  2. Sam Dunne

    Should my tax credits and tax band be reduced whilst in full-time employment if I’m no longer in receipt of a social welfare payment?

    Reply

    1. Ray Byrne

      Hi Sam,

      Thanks for getting in touch. If it is the current year Revenue should have sent you and your employer a Tax Credit Certificate at the start of the year and possibly an amended one since if you were then in receipt of Social Welfare income. Your employer uses this then to calculate the PAYE tax to deduct from your wages based on your total income, including any taxable Social Welfare income. So your credits and tax band will generally be reduced on that Tax Credit Certificate by an Social Welfare income that Revenue have noted on their system for you.

      All the best,
      Ray

      Reply

    1. Ray Byrne

      Hi David,

      Thanks for getting in touch. Once you start your new employment and register it with Revenue they will send a copy of your tax credit certificate to you and your employer. Once your employer receives this they will tax you accordingly and it should have your total welfare income received to date on it as well.

      All the best,
      Ray

      Reply

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