Dáil Éireann Debate, Tuesday - 26 July 2022
376. Deputy Pauline Tully asked the Minister for Finance if he will review the process by which recipients of illness benefit are liable for tax on this benefit but are not reimbursed once an insurance claim has paid and the illness benefit is repaid to the Department of Social Protection; and if he will make a statement on the matter. [40668/22]
View answerAs the Deputy may be aware, Illness Benefit is a short term, weekly income support provided by the Department of Social Protection (DSP) for those who cannot work due to illness and have the required number of Pay Related Social Insurance (PRSI) contributions. Section 126(3) of the Taxes Consolidation Act 1997 (TCA) provides that Illness Benefit is a taxable payment; it is liable to Income Tax (IT) but not the Universal Social Charge (USC) or PRSI. Additional payments made to claimants for qualifying children, i.e. Child Dependant increases, are exempt from IT, USC and PRSI.
Revenue has advised me that when an employee is absent from work due to illness and receives Illness Benefit, the tax on such benefit is collected through the PAYE system. The DSP notifies Revenue of the amount of taxable Illness Benefit in respect of the employee concerned and the tax due is collected through the reduction of the employee’s tax credits and tax bands. Revenue issues an amended Revenue Personal Notification (RPN) with reduced tax credits and rate bands to the employer so that they can collect any tax due. If there is any change or reduction to the taxable amount to be collected from the employee, then the DSP will report the update to Revenue who will amend the employee's RPN. Any refund of tax due will then be reimbursed by the employer to the employee through the employee's wages.
I am advised by the DSP that Illness Benefit is one of the illness and disability related income supports which fall under the Recovery of Benefits and Assistance (RBA) scheme. Where a compensation award for loss of earnings is made to the injured person as a consequence of a personal injuries claim, the RBA scheme allows the DSP to recover from the compensator (the liable entity) an amount up to or equivalent to the value of the illness-related payments received by the injured person. As the injured person’s actual illness-related payments are not being repaid, DSP advise that there is no implication for any refund of tax.
