Dáil Éireann Debate, Tuesday - 5 March 2024
234. Deputy Brendan Smith asked the Minister for Finance if he will review the tax treatment of statutory sick leave payments made by employers in order that they are not subject to the deductions such as USC that the State avoids it when it pays illness benefit to employees; and if he will make a statement on the matter. [10707/24]
Amharc ar fhreagraThe Sick Leave Act 2022 provides for employer paid sick leave and for medical absences at the rate of 70 per cent of the employee’s normal pay, capped at €110 per day, for up to 5 days in 2024. Statutory sick pay is available if an employee had been employed for at least 13 weeks in the relevant calendar year. The rules on the scheme are set out in the Sick Leave Act 2022, which is under the remit of the Department of Enterprise, Trade and Employment.
As statutory sick pay is paid by an employer directly to the employee, it forms part of the emoluments of the employee and as such it is taxed in the normal way through the PAYE system with income tax, USC and PRSI deducted by the employer in real time, meaning the employee receives an amount net of tax.
Illness Benefit is a weekly Social Welfare payment of between €104.10 and €232 with increases for qualifying adult and child dependents. An employee may be entitled to Illness Benefit if he or she cannot work due to sickness or illness, and has made sufficient PRSI contributions, and is also not in receipt of Statutory Sick Pay. Illness Benefit is administered by Department of Social Protection (DSP) and the rules of the scheme are provided for under Social Welfare legislation.
Section 126(3) of the Taxes Consolidation Act 1997, specifically provides for the taxation of Illness Benefit, but it is not liable to Universal Social Charge or PRSI. Any amount payable in respect of a qualified child is exempt from tax.
In general, Illness Benefit is paid directly to the employee by DSP, without any tax deducted. Revenue will generally deal with the taxation of the payment in real time through an adjustment to the employee’s tax credits and tax bands for the remainder of the tax year, which is reflected in the Revenue Payment Notification (“RPN”) issued to the employer. This ensures tax starts to be collected as soon as the employee receives a payment from their employer whether that is top up sick pay, or emoluments when he or she returns to work. Additional information on the taxation of Illness Benefit is available on Revenue.ie at the following link –
www.revenue.ie/en/employing-people/taxation-of-social-welfare-payments-illness-benefit/index.aspx.
The Taxes Consolidation Act 1997, under section 531AM, specifically exempts all social welfare payments, including illness benefit from USC. However, I have no plans to narrow the USC base further by exempting statutory sick pay from USC.
