Taxation of Paternity Benefit from 1 September 2016

The long awaited statutory paternity leave of 2 weeks together with a new Paternity Benefit has been introduced in respect of births and adoptions on or after 1 September 2016.

It is worth noting that Paternity Benefit (including any increases for adults and child dependants), payable by the Department of Social Protection (DSP) is liable to tax. USC and PRSI will not apply.

As part of the on-going exchange of information arrangements between the DSP and Revenue, Revenue will receive details of the benefit payments which will be updated onto Revenue's records.

Individuals who pay their tax through the PAYE system will should automatically have their annual tax credits and rate bands reduced by the amount of the Paternity Benefit payment. But OSK Tax Advisors recommend that to check your certificate of tax credits to ensure the reduction is made. Otherwise you may underpay your tax

Employers and pension providers should be advised by Revenue of the adjusted tax credits and cut-off points on employer tax credit certificates (P2Cs).

It's important to note that as Paternity Benefit is being taxed by reducing employees' tax credits and cut-off points on P2Cs, employers and pension providers should not include figures for this payment on forms P45, P60 or P35L.

Imelda Prendergast is Director and Head of OSK Contracting and OSK Small Business Support. OSK are the specialist Accountants for Contractors – call us today on 01 439 4200.