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.