Is maternity pay taxable?
What! As if maternity pay isn’t bad enough, you need to think about the tax implications too!
As part of your maternity leave budget plan, it’s important to get clear on your income.
Therefore, one of the checks that you should do is to see if any deductions will be made from your maternity pay.
What is Maternity Pay?
Before we get into talking about whether maternity pay is taxable or not, let’s first remind ourselves what maternity pay is.
Maternity pay is not maternity leave. It’s always important to remember the distinction between the two.
Maternity pay is what you get paid once your maternity leave officially starts. Being in employment is a key requirement for maternity leave and pay eligibility.
The official start date for maternity leave is nominated by you and can be any date 11 weeks before your official due date. That means the official date according to what is written on your MAT1B form.
Don’t forget to actually write to your employer about your intention to take maternity leave. There is a deadline for telling your employer when you intend to start. This date is week 35 of your pregnancy at the latest.
What is Statutory Maternity Pay (SMP)?
Statutory Maternity Pay (SMP) is the minimum maternity pay that your employer can pay you. You can expect around £151 per week to be paid for SMP.
Unlike maternity leave, which has no qualifying period – maternity pay does.
If you don’t qualify for maternity pay, remember that you could qualify for maternity allowance instead.
What is Enhanced or Contractual Maternity Pay?
Enhanced or contractual maternity pay is offered by many large and ex-local authority organisations. The arrangements can vary but if you are lucky enough to receive this, the value can be substantial.
If you are expecting to receive enhanced maternity pay, it should be at least the same value and terms as SMP. Always check what the terms and conditions are for enhanced maternity pay, especially if you don’t intend to return to work afterwards.
Is Tax and National Insurance payable?
In both circumstances above, your employer must deduct tax and NI from your Maternity Pay.
Whilst the effect of having unpaid maternity leave towards the end may result in you getting a tax refund, your employer is still required to make these deductions (just like they would for your normal pay).
If you’d like to kickstart your maternity leave savings plan, download my FREE maternity leave savings guide today.
Whilst this blog is very generalist advice, it’s no substitute for you speaking to a registered tax adviser if you are concerned about your tax position.