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.
|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)|
|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.
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.