Duncan Smith (Dublin Fingal East, Labour)
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184. To ask the Minister for Finance to outline any plans to make pension bonus payments tax free for individuals who are in receipt of a contributory State pension and a private pension; and if he will make a statement on the matter. [4723/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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It is a general principle of taxation that, in the absence of a specific exemption, income from all sources is, in general, subject to tax.

The State Pension (Contributory) benefit is a taxable source of income as provided for in Section 126 of the Taxes Consolidation Act 1997. As such, it is liable to Income Tax although it is not subject to the Universal Social Charge (USC) or Pay Related Social Insurance (PRSI).

In relation to additional payments or bonus payments, for tax purposes such payments follow the tax treatment of the underlying payment. Therefore, these additional payments are also subject to income tax.

The State pension is paid gross to the recipient. Where an individual is in receipt of the State pension from the Department of Social Protection (DSP) and also has an additional source of income such as an occupational pension, in general, the mechanism used by Revenue to collect the tax due on the gross DSP payments is by reducing the individual’s annual tax credits and rate band by the annual amount of their DSP income. Tax due on both the DSP income and any additional income will therefore be deducted from the additional income, only.

For example, for a taxpayer liable at the standard rate of tax of 20%, an increase of €5 per week in a DSP payment means that tax on an additional €260 per annum will be collected over the course of the year, by reducing a person’s tax credits by €52 for the year or €4.34 per month.

As the Deputy will appreciate, decisions regarding taxation measures are made in the context of the annual Budget and Finance Bill processes, at the appropriate time, and having regard to the sound management of the public finances. However, there are no plans to depart from the present arrangements such that these payments are taxable sources of income.