Dear Working Mother,
Taxes are a tricky and sensitive subject. Most people yawn and tune out when the topic is raised. Others get drawn into arguments about taxes they don’t understand. I have a theory that our judicious government make the business of taxes so convoluted that the ordinary woman in the street doesn’t ask too many questions. She complains about it down at the coffee shop (come on, we all know that’s where our social life happens now) at the weekend with the other common folk but dutifully pays her taxes each pay period.
I was having coffee with a friend recently. She runs her own business and is pregnant. She asked me if I knew what her working mother rights were in terms of maternity benefit and if she was entitled to it how did the taxation on maternity benefit work. I didn’t know the answer to either of her questions. But this is a very important subject for all working mothers. I’ve been researching and here’s my debunking of the government jargon.
Maternity benefit is a weekly payment to mothers on maternity leave from work and is covered by social insurance (PRSI). Application for maternity benefit should be made six weeks before you intend to go on leave (12 weeks if you’re self-employed).
Our frugal government has made some unwelcome changes to the area of maternity benefit in the last couple of years. Firstly, from 1 July 2013 maternity benefit became taxable. More on that in a moment.
The second change was introduced on 6 January 2014. There is now only one standardised rate of €230 per week for each new claimants. When I took maternity leave on my first baby four years ago this payment was €280 per week and wasn’t taxable. Over the course of the 26 weeks covered by maternity benefit, that’s a difference of €1,300 plus you now have to factor in the tax you’ll now pay on the benefit.
So how do you know if you are eligible for maternity benefit? Submit an application to the Department of Social Protection and they will review your PRSI contributions to determine your eligibility. In addition to having the required number of PRSI payments to support your claim, you will need to be in insurable employment up to the first day of your maternity leave.
If you are in employment you must have:
- At least 39 weeks PRSI paid in the 12-month period before the first day of your maternity leave
- At least 39 weeks PRSI paid or credited in the relevant tax year or in the tax year immediately following the relevant tax year. For example, if you are going on maternity leave in 2015, the relevant tax year is 2013 and the year following that is 2014.
- At least 26 weeks PRSI paid in the relevant tax year and at least 26 weeks PRSI paid in the tax year immediately before the relevant tax year. For example, if you are going on maternity leave in 2014, the relevant tax year is 2012 and the year before that is 2011.
If you are self-employed you must be in insurable employment and have:
- 52 weeks PRSI contributions paid at Class S in the relevant tax year. For example, if you are going on maternity leave in 2014, the relevant tax year is 2012.
- 52 weeks PRSI contributions paid at Class S in the tax year immediately before the relevant tax year. For example, if you are going on maternity leave in 2014, the tax year immediately before the relevant tax year is 2011.
- 52 weeks PRSI contributions paid at Class S in the tax year immediately following the relevant tax year. For example, if you are going on maternity leave in 2014, the tax year immediately following the relevant tax year is 2013.
PRSI Class S contributions for a particular year are not awarded until you have paid tax due for that year. Your income tax and PRSI liabilities (primarily for the relevant tax year) must be paid to qualify for Maternity Benefit.
If you earn less than €5,000 in a tax year then you are not insurably self-employed. But even if you are not sure if you have enough earnings, you should always apply to check whether you qualify.
So back to the tax issue. Maternity benefit is now liable to tax but not to USC or PRSI. This confusions a lot of mothers as they’re not sure how it’s handled.
Here’s how it works in a nutshell. The Department of Social Protection will provide details of your maternity benefit to the Revenue Commissioner, who will update their records. Your annual tax credits and rate bands will be reduced by the amount of your maternity payments. Your employer will be issued with a copy of your adjusted tax credit certificate.
If you receive full pay while on maternity leave and hand-over your maternity benefit directly to your employer only the difference between your salary paid and the maternity benefit is subject to tax, USC and PRSI by your employer in that pay period.
So for example if you earn €800 per week, your payment is effectively made up of:
Maternity benefit €230
Company salary €570
The company portion is chargeable to tax, USC and PRSI by your employer. The tax payable on the maternity benefit has been collected by the reduction in your tax credits and rate band.
If you receive “top-up” payments while on maternity leave and you retain the maternity benefit the situation is similar. Again the revenue will adjust your tax certificate and the top-up payment is chargeable to tax, USC and PRSI by your employer. The tax payable on your maternity benefit has now been collected by the reduction in your tax credits.
If, unfortunately, you don’t receive a salary from your employer while on maternity leave and you keep the maternity benefit, revenue will still issue a revised tax credit certificate to your employer. On your return to work any refund of tax which may be due to you will be calculated by your HR department. They will take into account the reduction in your tax credit certification to cover taxation due on maternity benefit.
In the case of self-employed women, the Department of Social Protection will notify the Revenue Commissioner of your maternity benefit. Through self-assessment you have a legal responsibility to declare all earnings, emoluments, social welfare payments (in this case your maternity benefit) to the Revenue Commissioner when you file your income tax return at the end of the year. Revenue will then calculate the amount of tax you owe (this will include tax due on your maternity benefit) and bill you accordingly.
We will be building up the “Working Mother Rights” section of our website over the coming months. If there are other topics you’d like us to research please comment here.
The Working Mother