PEN­SION BACKPAY

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

Pen­sion­ers who get a back pay­ment of the State pen­sion early next year shouldn’t get hit for tax if the back pay­ment pushes the to­tal amount of in­come they re­ceived in 2019 above the in­come tax ex­emp­tion lim­its for those aged 65 and over. This is be­cause of a change brought in un­der the Fi­nance Act 2017 which means that since Jan­uary 2018, cer­tain in­come (in­clud­ing so­cial wel­fare ) is tax­able in the year that it is earned, rather than in the year it is re­ceived. This mea­sure was brought in “to en­sure that pay­ment of ar­rears of so­cial wel­fare pay­ments does not re­sult in un­in­tended tax con­se­quences,” said a spokesman for the Rev­enue Com­mis­sion­ers.

“Where ar­rears of such pay­ments arise, the ac­cu­mu­la­tion of ar­rears could, if moved to a re­ceipts ba­sis [where in­come is tax­able in the year the in­come is paid], re­sult in pay­ments which would nor­mally be taxed at the lower rate of tax com­ing into charge at the mar­ginal [higher] rate. That sce­nario has been avoided by leav­ing so­cial wel­fare pay­ments on an earn­ings ba­sis [where in­come is tax­able in the year it was earned].”

Un­der the in­come tax ex­emp­tion lim­its, a sin­gle per­son aged 65 or more is ex­empt from in­come tax where their an­nual in­come is no more than €18,000; or €36,000 in the case of a cou­ple. The State pen­sion is not li­able to the Uni­ver­sal So­cial Charge (USC).

There is no need to in­form the Rev­enue Com­mis­sion­ers of any back pay­ment of the State pen­sion re­ceived in early 2019. The Depart­ment of So­cial Pro­tec­tion will no­tify Rev­enue of the back pay­ments paid to pen­sion­ers — as part of its nor­mal pay­ment in­for­ma­tion ex­change process. “Pay­ments re­fer­ring to 2018 will be al­lo­cated to the 2018 tax year on the re­cip­i­ents’ Rev­enue records,” said a spokes­woman for Rev­enue. “This, in turn, will en­sure that the earn­ings ba­sis is ap­plied to these pay­ments.” Those en­ti­tled to a back pay­ment are ex­pected to get their back money in the first three months of 2019. “Pay­ments will take a num­ber of months to process due to the num­bers of cus­tomers in­volved,” said a spokes­woman for the Depart­ment of So­cial Pro­tec­tion. Back pay­ments are due be­cause the Gov­ern­ment has de­cided that the date at which the new TCA will come into ef­fect for these 67,000 pen­sion­ers is March 30, 2018. As it will be early 2019 be­fore these peo­ple get any higher State pen­sion due to them un­der the TCA (as­sum­ing they move to the TCA), the higher pay­ments will be back­dated to the end of March 2018 — or later where a per­son reached their 66th birth­day af­ter that date. The back pay­ments won’t go back as far as Septem­ber 2012 — which is when many of the 67,000 pen­sion­ers saw their State pen­sion cut. Where back pay­ments are due, they “will vary sig­nif­i­cantly, depend­ing upon the in­di­vid­ual’s so­cial in­surance record”, ac­cord­ing to the Depart­ment. By this pa­per’s cal­cu­la­tions, were a pen­sioner due a €40 weekly in­crease to their State pen­sion, their back pay­ment could be worth about €1,500 — based on the pen­sioner be­ing en­ti­tled to €40 ex­tra a week be­tween March 30, 2018 and the end of 2018.

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