The tax treatment of maternity benefit is quite different to how any other income you earn is taxed.
Are you having difficulty understanding your payslip during maternity leave, or how is your maternity benefit taxed? Then hopefully, after taking a few minutes to read this blog post, you will be much clearer on the subject.
- Your maternity benefit will only be subject to income tax and not USC, or PRSI.
- The Revenue Commissioner collect the tax due on maternity leave by reducing your tax credits and standard rate band.
- You will pay PAYE, PRSI and USC on any top-up payments you receive from your employer above the €262 weekly payment.
- Those who receive no top-up payments during their maternity leave will likely be due a tax refund at the end of the year.
How much is maternity leave in 2023
Those who are eligible for maternity benefit will be entitled to 26 weekly payments of €262, which totals €6,812.
Note if you are in receipt of certain social welfare payments (such as one-parent family payment), then you will only be entitled to half-rate of maternity benefit.
You are also entitled to take another 16 weeks of maternity leave on top of these 6-months, but you will not receive any maternity benefit for this period.
If you take full advantage of this 16-week period, then you will still be credited with social insurance contributions for that period.
Who is eligible for maternity benefit?
Your eligibility for maternity benefit will be dependent on how many PRSI contributions you have made. If you meet one of the following three criteria then you will qualify:
- 39 weeks of PRSI within 12 months of your maternity leave date, or
- paid 26 weeks of PRSI paid in the relevant tax year and at least 26 weeks of PRSI paid in the tax year before the relevant tax year. (if you are going on maternity leave in 2023, the relevant tax year is 2021), or
- At least 39 weeks of PRSI paid since first starting work and at least 39 weeks of PRSI paid or credited in the relevant tax year or in the tax year after the relevant tax year.
How your maternity benefit is taxed
Your maternity benefit will be subject to income tax – but will be exempt from both USC and PRSI.
The Revenue Commissioner will collect the tax due on maternity benefit by reducing your income tax credits and reducing your standard rate tax band. (See the example in the next section for more details).
If you receive any top-up payments from your employer, then these will be taxed as normal (income tax, PRSI and USC).
Essentially you should pay less tax during maternity leave as you will pay less USC and PRSI.
Real Life Example
To fully understand how the taxes work in detail we need to go through some examples.
For Joanne, the €262 is paid directly to her employer; effectively they only have to pay her the top-up amount for the 6 months.
Before both ladies go on maternity leave, they had the following annual tax credits and tax bands.
Now we divide both of these by 52 to get the weekly amounts.
The weekly tax credit figure is reduced as follows for both ladies when they go on maternity leave.
The lower tax band is also reduced by the full amount of the maternity benefit payment.
With these new tax credits and bands, we see how taxes of Joanne change from pre-maternity leave to when she is on maternity leave.
As we see for Joanne the big change for her is she is paying less PRSI and USC because the maternity benefit she is receiving is exempt from these taxes.
Orla who did not receive any top-up during the year is likely to have overpaid tax during the year.
Once both ladies go back to work (or after the 6 month period), their tax credits and bands will once again go back to pre-maternity leave levels.
Jointly assessed couples
Jointly assessed couples can share their tax credits and rate bands, which means it can be much more tax efficient to be married rather than assessed separately in certain situations.
When it comes to maternity benefit, if you do not have enough tax credits or standard rate band for the Revenue Commissioner to collect the tax due on your maternity benefit, then this can also be collected from your partner in the case of jointly assessed couples.
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.