News & Events
What is available to new mothers and fathers, and what are the tax issues?
With the introduction of paid parental leave for the first time in Budget 2019, now is a good time to recap on parents’ entitlements and potential tax issues associated with those entitlements.
• The basic maternity leave entitlement for mothers is 26 weeks. You must take at least 2 of these weeks before the end of the week of the baby’s expected date of arrival. You may be entitled to additional maternity leave if your baby is born prematurely.
• You should also be entitled to a further 16 weeks maternity leave immediately after the 26 weeks; however, this would be unpaid leave.
• If you are in a situation where your baby needs hospital care post birth, there are circumstances whereby you may be able to postpone the last 12 weeks of the maternity leave and benefit. The benefit can be postponed for up to 6 months. This is to optimise the time with you and your baby once the baby is at home with you.
• For self-employed women, it is important that the application form for maternity benefit is submitted at least 12 weeks before you intend to go on maternity leave. The application deadline for employees is only half that – 6 weeks before commencing maternity leave.
• In order to qualify for maternity benefit, you must have a minimum level of PRSI contributions paid. There are various rules, depending on one’s circumstances. The rules for employees to qualify for full maternity benefit are more relaxed than those relating to self-employed mothers.
• Full-time employees receive a payment of €240 per week (as at the time of writing), with an increase of €5.00 due from 25th March 2019. This may be increased if you have dependents and your partner is unemployed.
• Paternity leave entitles the father to two weeks off following the birth of the child. Paternity benefit means that they can also qualify for a weekly payment of €240 for two weeks. You would need to take all of their paternity leave in one single block. So, if you only take a week, you can’t apply for the other week a month later. The two weeks can be taken at any time in the first 6 months of the baby’s life.
• Maternity benefit and paternity benefit are subject to income tax. However, they are not subject to PRSI or Universal Social Charge.
• The Department of Employment Affairs and Social Protection (which pays the benefits) does not directly tax the benefits. That Department passes the details to the Revenue Commissioners. For employees, the Revenue will generally receive the tax by amending your tax credits and standard rate cut-off point through the payroll. When you stop receiving the benefit, Social Welfare will advise Revenue and Revenue will issue an amended certificate of tax credits to your employer to restore the tax credits. If the maternity benefit spans 2 tax years, the tax collected in year 2 is spread over the full tax year. If you do not have enough tax credits to cover the tax due, the tax may be collected by adjusting the other spouse’s credits. For individuals who are self-assessed, you declare the income on your annual income tax return.
• There are various arrangements that you can come to with your employer in terms of how the maternity benefit is paid:-
1. You may receive your normal full wages from your employer whilst on maternity leave, and the benefit is paid directly to your employer. In such circumstances, the maternity benefit is subject to income tax (by adjusting the tax credits). The difference between the benefit and the full wages is subject to income tax, PRSI and USC as per normal payroll taxes.
2. You may receive full wages or top up wages and the benefit is paid directly by Welfare to you. Again, the tax is collected by Revenue on the maternity benefit by reducing your tax credits accordingly. The additional salary that you receive is subject to payroll taxes, but you are paying more taxes through the payroll than you normally would as you are receiving less tax credits.
3. You may not be paid any additional salary whilst on maternity leave, and just receive the maternity benefit of €240 per week for the 26 weeks. In that case, Revenue will issue a revised tax credits certificate to your employer However, if the maternity benefit is your only source of income whilst on maternity leave, it is unlikely that you will have any tax to pay on it. You could have a situation whereby you may be entitled to a tax refund at the end of the tax year. You should review your position to identify if this is the case.
• In addition to the maternity leave and paternity leave referred to above, parents are also entitled to 18 weeks of unpaid parental leave. It would need to be taken before the child’s 8th birthday. The fact that this is unpaid obviously means that it is restricted to those who can afford it. However, in Budget 2019, an element of paid parental leave is being introduced from November 2019 onwards. Both the mother and father will be entitled to an extra 2 weeks paid parental leave – the rates will be the same as maternity/paternity benefit rates. And the 2 weeks need to be taken in the first year of the baby’s life. The paid parental leave cannot be interchanged between the mother and the father e.g. you can’t have a situation where the mother takes 3 weeks paid leave, leaving 1 for the father; or vice versa.
As you can see, there are various benefits that you may be entitled to – just make sure you are aware of them and that you get the applications in on time. The 2 extra paid weeks starting in November 2019 are a welcome boost. Here’s hoping that our Government can push on now and ease the burden on parents in terms of caring for these kids – in the guise of childcare incentives.
Please feel free to contact Adrian Farragher [email protected] in our Tax Department if you require any assistance on the above.