The New Paternity Benefit & how it will be taxed?

As you will recall, Statutory paternity leave of 2 weeks together with a new Paternity Benefit was introduced in the last Budget in respect of births and adoptions on or after 1 September 2016.

The Revenue Commissioners published guidance last week on how it will be administered through the income tax system.

Paternity Benefit (including any increases for adults and child dependant’s) is payable by the Department of Social Protection (DSP).

Paternity Benefit is liable to tax but not the USC or PRSI.

The Revenue will receive the details of the benefit payments directly from the Department of Social Protection which will then be updated onto the Revenue's records.

Employers & Pension Providers will be advised of the adjusted tax credits and cut-off points on employer tax credit certificates through amended P2C’s.

Individuals who pay their tax through the PAYE system will, where possible automatically have their annual tax credits and tax rate bands reduced by the amount of the Paternity Benefit payment.

As Paternity Benefit is being taxed by reducing employees’ tax credits and tax cut-off points, employers/pension providers do not include this payment on forms P45, P60 or P35L.

I trust you find this note useful and any questions, feel free to contact me.

Timothy Kelliher Chartered Accountant