Taxation of Illness Benefit

Prior to 1 Jan 2012

The first 6 weeks of Illness Benefit were exempt for tax purposes.

From 1 Jan 2012

All Illness Benefit paid by the Department of Social Protection is now a taxable source of income.

Employers must ensure that they declare the amount of Illness Benefit received by employees on the P35.

How Illness Benefit should be handled through payroll

Employer is paying the employee while absent and is recouping the Illness Benefit from the employee

The payroll administrator should ensure that the portion of salary that relates to Illness Benefit is fully taxed.  The illness benefit is exempt from PRSI and USC.

Employee retains the Illness Benefit is not being paid from the employer

When the employee returns to work the payroll administrator should record all Illness Benefit received by the employee on their first payslip.