We often get asked about the tax on state benefits. Many people think that they’re all tax-free….but they’re not.
Therefore, we’ve put together a list of the main benefits and the tax implications for them.
The following benefits are taxable if your income is above the annual tax-free personal allowance.
- state pension
- widow’s pension
- carer’s allowance
- incapacity benefits (from week 29)
- jobseeker’s allowance
- contribution-based employment and support allowance
- statutory maternity/paternity/adoption pay
- statutory sick pay
- bereavement allowance
- widowed parent’s allowance
Non-taxable state benefits
The following benefits can be received tax free. They are not included in your taxable income and do not affect your personal tax-free allowance.
- working tax credit
- child tax credit
- income support
- universal credit
- pension credit
- housing benefit
- income-related employment and support allowance
- guardian’s allowance
- maternity allowance
- industrial injuries benefit
- disability living allowance
- severe disablement allowance
- lump sum bereavement payments
- winter fuel payments and Christmas bonus
- free TV licence for over 75s
- war widow’s pension
- young person’s bridging allowance.
Child benefit is tax-free. However, if either you or your partner earns more than £50,000, then some (or all) of the benefit is repayable as a “high income child benefit tax charge”.
The key fact is that only one of you needs to earn more than £50,000 to trigger the repayment.
This charge is calculated as 1% of the child benefit received for every £100 by which your income exceeds £50,000. If your income is £60,000, you repay all of the child benefit.
You have two children and received £1,788 in child benefit last year. You earn £56,000 for the year. You must repay 60% of the child benefit.
This is calculated by 1% x (£56,000 – £50,000)/£100 = 60%. Therefore, you will repay £1,788 x 60% = £1,073.
If you know that your income (or your partner’s) will exceed £60,000, you can stop claiming the benefit rather than claim it and repay it.
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Added by Jon Davies
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