Dáil Éireann Debate, Thursday - 19 June 2025
243. Deputy Louis O'Hara asked the Minister for Finance the way in which his Department is ensuring that people in receipt of social protection payments are taxed properly to avoid an underpayment of income tax and receiving an underpayment bill from the Revenue Commissioners; and if he will make a statement on the matter. [33377/25]
View answerSection 126 of the Taxes Consolidation Act 1997 provides for the taxation of certain payments from the Department of Social Protection (DSP). Such payments are liable to Income Tax, although they are not subject to the Universal Social Charge (USC) or Pay Related Social Insurance (PRSI). This taxation treatment applies to long-term DSP payments, such as the State Pension, shorter-term payments such as Job Seekers Benefit, and in work supports such as Parents Benefit.
Payments from the DSP are paid gross to the recipient. Where a person in receipt of a taxable payments from DSP also has an additional source of employment or pension income, Revenue collects the tax due by reducing the person’s annual tax credits and rate band by the annual amount of their DSP income. This ensures that the DSP payment is paid gross to the recipient, while the salary or pension, as paid by their employer, will have any tax due on the DSP income deducted from it.
I am advised by Revenue that, with effect from 1 January 2025, this mechanism was extended to taxpayers who are required to file an Income Tax Return (Form 11) annually for those taxpayers in receipt of other income taxed through the PAYE system. This means that any tax liability arising from DSP income will be collected throughout the year via payroll, rather than the taxpayer paying the additional liability after filing their annual Form 11. This aligns with the current practice for those earning PAYE income and who are in receipt of income from DSP.
Revenue further advise that they receive information on the majority of taxable payments directly from DSP. This removes the need for some taxpayers to advise Revenue when they are in receipt of such a payment. Recipients of taxable payments that are not provided to Revenue by DSP are informed by DSP that they are required to declare this income to Revenue on their annual tax return.
An underpayment of tax in respect of DSP payments will typically arise where Revenue does not receive prompt notification of the amount or duration of such payments. Where a taxpayer files a PAYE Income Tax Return for a previous year and includes income from DSP payments which were not known to Revenue during that year, this will result in an underpayment of tax.
An underpayment of tax can also arise where the tax due on a DSP payment exceeds a taxpayer’s weekly tax credit. For example, a single person in receipt of a short-term payment, such as Jobseekers Benefit, of €244 per week will have their tax liability covered by their weekly tax credit of €76.92. Where that same individual moves to Pay Related Benefit of €450 per week, their weekly tax credit will not cover the additional liability, and this may result in an underpayment of tax at the end of the year.
Further information on the taxation of DSP payments and the list of DSP payments that need to be declared to Revenue can be found on Revenue’s website at: www.revenue.ie/en/jobs-and-pensions/taxation-of-social-welfare-payments/index.aspx.
