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Column: Young families have been hit with a double tax whammy

For many young families struggling to cope financially, two new extra charges coming at the same time could hit them hard, so it’s imperative that they plan for the reduced income going forward, writes tax expert Christine Keily.

Christine Keily

From the beginning of July, phased payments of the Local Property tax charge for some households, alongside the taxing of maternity benefit and adoptive benefit, will  increase the tax bill of workers in receipt of these payments. Tax expert Christine Keily explains what young families need to know about the upcoming changes…

AS MOST PEOPLE will be aware, each employee in the PAYE system receives a tax credit certificate each year outlining the appropriate tax credits and standard rate cut off point as allocated by Revenue to them based on the information available.

The certificate issued to the employee is for his/her records only and he/she is not required to pass this onto the employer. The employer receives a separate notification from Revenue called a P2C. An employer or payroll provider is obliged to operate PAYE based on the P2C issued – regardless of any other information they may have or instructions they may receive from the employee.

Amended tax credits

From time to time employees and employers will receive amended certificates of tax credits/amended P2Cs during the year if, for example, Revenue become aware of an additional credit which may be due to the employee or if they have calculated an underpayment from a prior year and wish to reduce the individual’s tax credits in order to collect the underpayment.

However, from 1 July, phased payments of the Local Property tax charge will begin and those who have selected this option (along with certain non compliers) will have it deducted from their wages at source. At the same time, the Department of Social Protection’s Maternity benefit and Adoptive benefit payments will become taxable which will unfortunately increase the tax bill of those workers in receipt of these payments.

A double tax whammy for families

With reference to the Local Property Tax, individuals have been provided with a number of payment options and one of these options is deduction from wages/occupational pension. Revenue have confirmed that where an employee/pension recipient makes an election for the tax to be paid in this way they will notify the employer/pension provider via an amended P2C. The deductions will commence after the 1 July 2013 and the total amount due must be deducted evenly across the remaining pay periods in the year.

With regard to the taxation of maternity benefit and adoptive benefit, the Department of Social Protection will not deduct tax from these payments. Instead, they will share the payment information with Revenue (as they did with those in receipt of pensions last year) and Revenue will update each individual’s Revenue record in this regard.

Planning is essential

In any case where the recipient is paying tax via the PAYE system, their tax credit certificate will be adjusted in order to collect the tax due on the Department payment. This means that individuals will see a reduction in their tax credits and the net income issuing to them via the PAYE system will be reduced – ie rather than seeing a reduction in the net maternity benefit and adoptive benefit payment, they will see a reduction in their employment payment.

In both of the above cases, employers and pension providers will be required to operate in accordance with the P2Cs issued.

For many young families struggling to cope financially, these two extra charges coming at the same time particularly when they have the added cost of a new baby could hit them hard, so it’s imperative that they plan for the reduced income going forward.

Christine Keily has over 12 years’ experience in Irish taxation, social security and payroll. She is an AITI Chartered Tax Adviser (CTA) and an associate of the Irish Payroll Association. Christine trained in KPMG and prior to moving to was a manager in the Global Employer Services (GES) department in Deloitte Dublin specialising in the area of expatriate tax and social security compliance and consultancy for multinational companies.

She has extensive experience in the management of expatriate tax compliance and dealing with tax issues arising in respect of compliance and planning for a portfolio of multinational companies across different industry sectors including Financial Services, Pharmaceutical, Manufacturing and Consumer Business.

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Christine Keily

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