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 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. As a result of maternity benefit payments becoming liable to income tax for all claimants, 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 some or all of their maternity benefit payment solely 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 all of their maternity benefit payment at the higher rate.
I am fully aware that some employers do not pay a top up payment to their employees whilst on maternity leave. However, in such circumstances many mothers will not be subject to income tax on their maternity benefit payments as their personal credits will ensure that no tax arises on the social welfare income itself. Of course, the extent, if any, to which taxation actually arises in a given case, depends on the total level of income that the individual or couple concerned has in the relevant tax year or years.
I would point out that maternity benefit payments will remain exempt from Universal Social Charge and PRSI.
Given the current budgetary constraints I have no plans to introduce a tax exemption along the lines proposed.