Maternity benefit is not regarded as Income and should not be taxed. However, many employers make the mistake of over taxing their employees whilst they are out on maternity leave. This can happen if you continue to pay your employee their full wage as normal and recover the maternity benefit directly from the Dept of Social Protection.
The employee should only be taxed on the “top-up” ie the difference between the net pay normally paid less the Maternity Benefit payment. Not only that, but the PRSI will also be overstated – for both Employer and Employee PRSI. The good news is that both you and your employee can get a refund of these overpayments. Here’s how you go about it:
For your employee to claim a refund, they need to know exactly how much Maternity Benefit they received. This can be found out easily by obtaining an MB21 Statement from the Dept of Social Protection. Your employee can email them on firstname.lastname@example.org with their PPS number and contact address and they will receive this statement quite quickly. Alternatively, the Maternity Benefit Section can be called on 1890 690690.
The employee needs to send a letter to their local tax office along with the MB21 statement and a copy of their P60 for the relevant year or years (if the maternity spans over two years) requesting that the Revenue investigate if they overpaid tax. It helps to include a letter from the employer stating that the amount on the P60 includes the maternity benefit received directly from the Dept of Social Protection.
Next on the list is to reclaim any overpaid PRSI. Download form PRSIREF1 from this link www.welfare.ie/EN/Forms/Documents/prsiref1.pdf and both employee and employer need to complete the relevant sections. This can then be sent to the address on the form, together with the P60 for the relevant year. Unfortunately, processing time for a PRSI refund can take up to four months at the moment. You, as the employer, can send a letter to the same section with your company details to reclaim a refund on Employers PRSI overpaid.
Bear in mind that there is a time limit of 4 years to make an application for a refund.
The budget in 2011 brought more changes with the USC and restrictions on pension. It is essential that whoever is managing your payroll is fully up to speed on all of the intricacies of the current taxation system.