State Pension - Tax Credit Cert

Shurwhynot

Hi All,

I'm just trying to organise my parents taxes at the minute, and am just a bit confused as to the treatment of my mother's state pension on their tax credit cert.

Their married band of €67,600 is reduced by her state pension contribution (€11,894.24), so only their first €55,705.76 is taxed at 20%. I'm just wondering why this is? Is it the governments way of pushing anyone unfortunate enough to still have to work in their senior years into the higher tax bracket?

srsly78

Everyone pays tax on their income, being old gets you some advantages but you still gotta pay.

Did you actually think pensioners were tax-exempt?

Now go look at the different treatment of contributory vs non-contributory state pension.

Shurwhynot

srsly78 wrote: »

Everyone pays tax on their income, being old gets you some advantages but you still gotta pay.

Did you actually think pensioners were tax-exempt?

Now go look at the different treatment of contributory vs non-contributory state pension.

Where did i say that they shouldn't pay tax on their income?

I'm wondering why the married band is reduced by the state pension amount

gerrybbadd

The state pension is taxable, but the Dept. of Social Protection can't tax it at source, like your normal employment income is.

So, in order for the tax to be collected, the rate bands and tax credits are reduced, and the additional tax due is collected through employment or private pension income instead.

Just Retired

Hi-There
State Pensions (Contributory) are treated as Taxable income by Revenue. State Pensions are paid out without deduction of tax.So in order to collect the tax on it, adjustments are made to The Standard Rate Cut off Point,SRCOP, and Tax credits as well.If State pensions were the only source of income for both your parents and this was below €36,000.00c there would be no liability to Tax provided both were over 65 years of age.If there is another source of income,usually a work related pension, then a cert for this income is issued by Revenue,with all the SRCOP and Tax credits set out.It should be noted that CONTRIBUTORY STATE PENSIONS are not subject to the USC charge, CONTRIBUTORY STATE PENSIONS are not subject to PRSI either.

1. SRCOP

---

€67,000.00C
2. Personal Tax Credit

---

€3,300.00c
3. PAYE Tax Credit

---

€1,650.00c
4. Age Credit

---

€490.00c (Both over 65)
5.Total Credits

---

€5,440.00c

Adjust for State Pension of €11,894.24
1. SRCOP

---

€55,705.76c Income above this amount is charged at the 40% Tax rate
2.Tax Credits

---

€4,352.00c 20% of Total credits adjusted to collect tax on State Pension
The Adjusted SRCOP & Tax credits means that the correct tax is paid on all of their taxable income.It should be noted
that the Dept.of Social Protection forward details of State contributory pension incomes of individuals to the Revenue at Revenue's request.
I hope this will help you.

Just retired

Shurwhynot

Hi all - just a quick follow up to this.

Both my parents are still working, and one is getting state pension. I just did their 2017 tax return, and despite their tax credit cert for that year stating that the married band of €67,600 was to be reduced by the state pension amount (€11,894), and anything over €55,705 taxed at 40%, their total combined income on the p21 has been taxed at 20% (approx €62k, including state pension amount). Just not entirely sure what i am missing here? Why was the balance over €55,705 not taxed at 40%? They have got a nice tidy refund as a result, so happy days!

CIARAN_BOYLE

tax credit cert is for employment.

the srcop is not reduced for the year. its used in social welfare and not available for employment.

kennethrhcp

Shurwhynot wrote: »

Hi all - just a quick follow up to this.

Both my parents are still working, and one is getting state pension. I just did their 2017 tax return, and despite their tax credit cert for that year stating that the married band of €67,600 was to be reduced by the state pension amount (€11,894), and anything over €55,705 taxed at 40%, their total combined income on the p21 has been taxed at 20% (approx €62k, including state pension amount). Just not entirely sure what i am missing here? Why was the balance over €55,705 not taxed at 40%? They have got a nice tidy refund as a result, so happy days!

I think you're just struggling to get your head around a small thing here. yes their tax credit cert showed a reduced rate band, but they are fully entitled to their full rate band still.

you even say yourself in the above post that the 62k earned includes the state pension... what might help you understand it: take it take your parents pension was already taxed correctly (still needs to go into the F11). That means that only 50,106 needs to be taxed still (even tho taxed by employer), this amount is under the 55,705 you referred to already so it's taxed at 20%.

if the entire amount earned was 62k (inc pension) & their rate band in full amounts to 67.6k (which inc the amount allocated to the pension 11,894) then they don't have income taxed at 40%.

*i'll not go into the scenario where there might be tax at 40% when one spouse earns a lot more than another. but in your situation I'd imagine neither spouse earns more than 9k more than the other

brownej

I'm going to resurrect this thread as I have a related query and hopefully it should be straightforward.

I am singly assessed for Tax. From my primary income I pay tax at the high rate.

June last year I started to come into receipt of a contributory state widowers pension however my new tax credit cert was not issued until November. My earnings for November and December were adjusted to take into account of the tax liability.

However I dont appear to have been back taxed. So I have not paid income tax on the pension received from June to November. Do I need to pay this as part of my tax return. How do I figure out what portion of the pension has been properly taxed already.

My online revenue summary on the revenue website makes no mention of income from the state pension in my incomes and pensions section. Is this correct? It is on my tax credit cert.

Thanks in advance.

Stratvs

Unfortunately there can be months delays between receipt of DSP pensions and them notifying Revenue. It’s best, if the taxpayer knows what they are getting and when it starts that they notify Revenue directly then Revenue can code it in faster.

In your case for 2021 it looks like. Week1/Month1 cert issued 8n November and you were then correctly taxed in those months and presumably since into 2022.

For the earlier 2021 period the only way to sort it is to complete the 2021 eForm12 ( assuming that you do not have any non-PAYE income requiring completion of Form11). You input the actual DSP income received even if they do not have the amount ( usually they do but in commencement cases it may not always be correct). You’ll get a Statement of Liability showing your PAYE income and tax paid, the DSP income and all credits/deductions with an underpayment of the tax not paid. Make sure and input anything like medical exps if any which would help reduce the underpayment.

it’s likely the underpayment will then be collected by adjusting your tax credits/cutoff point for 2023 and may even be over a couple of years. So you’ll end up paying it back then a bit each month with no penalties or anything.

brownej

https://www.boards.ie/discussion/comment/118736483#Comment_118736483

Thank you very much for your detailed response. Very informative. Do you know would there be an option to just pay the back tax owed rather than have my credits adjusted further?

I will need to call the revenue anyway. I cant do a form 12 online as they say my details are not correct and need updating. (I'm guessing my late husbands status is not properly reflected)

brownej

I managed to get through to the Revenue on the phone (only waiting 20 mins which I understand is good).

Anyway for anyone else that is in a similar position to me, I was informed that if you are a widow(er) you are not permitted to make an online return in the year of the bereavement. You need to make a paper return. She was very apologetic and she didnt know the reason but apparently those are the rules.