Michael McGrath (Cork South Central, Fianna Fail)
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The Department of Social Protection (DSP) State pension (contributory) is a taxable source of income, similar to certain other DSP payments including Jobseekers’ Benefit and Maternity Benefit. As such, it is liable to Income Tax (IT) although it is not subject to the Universal Social Charge (USC) or Pay Related Social Insurance (PRSI).

Section 126(2B) of the Taxes Consolidation Act (TCA) 1997 provides that, with effect from 1 January 2014, any increase in the State pension in respect of a qualified adult dependant is treated as a taxable income of the beneficiary of the pension, even in circumstances where the payment may be made directly to the qualifying adult dependant.

Where a person in receipt of the State pension from DSP has an additional source of employment or pension income, the mechanism used to tax payments from DSP is by reducing the person’s annual tax credits and rate band by the annual amount of their DSP income. This ensures that the weekly payment from DSP is paid gross to the recipient, while the weekly/monthly salary or pension, paid by their employer, will have any tax due on the DSP income and the employment deducted from it.

For example, an increase of €5 per week in a DSP payment means that tax on an additional €260 is to be collected over the course of the year by reducing a person’s tax credits. €260 extra income at the standard rate of tax of 20% gives rise to a reduction in tax credits of €52 for the year or €4.34 per month, ensuring the recipient is not adversely impacted by any increase in DSP income.

I am advised by Revenue, that a review of the tax credits and reliefs of the person concerned has confirmed that they are in receipt of their full entitlements. However, the individual is in a preliminary tax overpayment position for the tax years 2022 and 2023 and Revenue will make contact to assist in completing the necessary income tax returns, which will allow the refunds to issue.