There is a common misconception that all benefits from the Department of Social Protection are not taxable. However this is not the case.
The following are examples of some benefits which are not liable for tax:
- Jobseeker’s allowance
- Maternity benefit (however will be taxable from July 2013).
- Adoptive benefit
- Child benefit
- Bereavement grant
- Disability allowance
- Family income supplement
The most common taxable benefits arising in practice are job seekers benefit, illness benefit, carer’s benefit, State pension and one parent family payment.
Any individual in receipt of benefits from the Department of Social Protection is obliged to declare same to the Revenue Commissioners. As no tax is deducted at source from the payment of the benefit, this can lead to substantial tax underpayments for people in receipt of taxable benefits.
If an individual has other income e.g. private pension which uses up all of their tax credits then any taxable benefit they receive is liable for tax in full. Many taxpayers are not aware of this and if it is left uncorrected for a number of years a very substantial tax liability may arise in addition to interest and penalties.
The Revenue Commissioners are currently comparing data received from the Department of Social Protection with income tax returns filed in the tax year 2010 and prior tax years to ensure that individuals included in their returns any taxable benefits which they received