The position is, as I stated in my Budget day speech of 5 December 2012, that from the 1st of July 2013, Maternity Benefit will be treated as taxable income. It should be noted that it is a general principle of taxation that, as far as possible, income from all sources should be subject to taxation. In line with this principle, the majority of social welfare payments are reckonable as income for tax purposes. These include long-term payments such as the Disablement Benefit, the State Pension, Widows, Invalidity and Blind Pensions, Carers Allowance and the One Parent Family Payment as well as short term benefits such as Job Seekers Benefit. Treating these payments as income for tax purposes is essentially a matter of equity.
Of course, the extent, if any, to which taxation actually arises in a given case depends on the level of income that a recipient has in a tax year. If there is no other income besides the social welfare payment, the basic personal credits in force can be expected in most cases to ensure that no tax arises on the social welfare income itself.
There are situations currently where an employee continues to be paid by her employer, in full, while on maternity leave and, based on her PRSI contributions, is entitled to Maternity Benefit from the Department of Social Protection. The non-taxation of such benefit currently results in an employee having a greater net take-home pay for the period of maternity benefit, than if she was at work.
The rates of Maternity Benefit are earnings-related and are set to reflect post-tax income. It was never intended that individuals would gain financially by being on maternity leave. The introduction of the charge to income tax on maternity benefit payments will ensure that those with identical incomes will be treated the same for income tax purposes.
However, it should be noted that maternity benefit payments will remain exempt from Universal Social Charge and PRSI.
The Revenue Commissioners estimated that the expected yield from the taxation of Maternity Benefit payments will be €15 million in 2013 and €40 million in a full year.
In addition, I would point out that as a result of Maternity Benefit payments becoming liable to income tax for all claimants with effect from 1 July 2013, a number of possible tax outcomes could arise:
1. An individual may pay no income tax on their maternity benefit payment as their tax credits will be sufficient to reduce their tax liability to zero.
2. An individual may pay income tax on their maternity benefit payments at the standard rate.
3. An individual may pay income tax at the standard rate on a portion of the maternity benefit and the higher rate on the balance of the maternity benefit payment.
4. An individual may pay income tax on their maternity benefit payments at the higher rate.