Income tax system punishes women who give birth late in year

The time of filing income tax returns is nearly upon us. The new income tax system, in effect since last year, will obligate many women who went on maternity leave toward the end of the year to make additional income tax payments, while those who give birth in the middle or at the beginning of the year have no such obligation. What this means is that some women will owe the state simply for giving birth “at the wrong time”.

Laura Roop, who went on maternity leave in November, visited the tax board’s website, only to discover she has to return over €500 to the state. The woman didn’t even make full use of her basic exemption.

“Perhaps women who plan to make babies in the coming months should be warned,” she wrote based on her experience. They would also give birth toward the end of the year.

The health insurance fund pays women 4.7 months’ salary when they go on maternity leave. This salary has to last for almost five months before the parental leave benefit kicks in.

Because the maternity leave benefit cannot be paid in installments, and because it is impossible to defer the date of the baby’s birth, women who give birth at the end of the year find themselves in a difficult position.

Head of the PR and health promotion department of the Estonian Health Insurance Fund Evelin Trink said that the fund is obligated to follow the law and pay out the benefit in bulk.

Fund cannot choose time of payment

“Unfortunately, the health insurance fund cannot choose when or how to pay out the benefit,” she explained. Trink added that the health insurance act includes a clause, according to which the benefit needs to be paid out inside 30 days after the expectant mother files for maternity leave.

The benefit cannot be seen as one-off additional income as the person needs to live on it for several months. That is also why the new system does not affect women who give birth in the middle or at the beginning of the year as the 4.7 months without income that follow the benefit fall inside the same year in that case. The new income tax act makes no provisions for this situation and puts women who have not planned their pregnancy accordingly at a disadvantage.

Former analyst Kaja Sõstra has made it her business as her daughter also has to return income tax to the state due to giving birth at an unfavorable time. Sõstra calculated that the current situation costs people who make between 900 and 1,500 euros a month, while it leaves unaffected women who make over 1,500 euros and even benefits those making 2,000-2,500 euros. People earning an even bigger salary would not be eligible for the exemption anyway.  However, when they are paid several months’ salary at once at the end of the year and spend several months without income at the beginning of next year, they will be eligible for an income tax exemption on annual income for the following year and see the state return the money.

What this basically means is that women who earn a lower salary must pay more, while wealthier women in the same situation get even wealthier.

Sõstra said that, unfortunately, young women seldom know the law. “People generally believe that if they don’t have to pay additional income tax when they file their returns, everything is fine. Many women who have the same problem as my daughter either didn’t understand the problem or suggested opting for zero basic exemption to escape the obligation of having to pay more. What they did not realize is that they are simply paying the extra tax in advance. A mandatory advance payment still constitutes an additional obligation for them,” she explained.

Lawmakers in the dark.

The tax policy department of the Ministry of Finance that wrote the new income tax bill said the aim was to treat everyone equally.

“To ensure tax neutrality, income recipients are treated uniformly and irrespectively of type of income in calculating exemption,” the ministry’s PR head Siiri Suutre said. The ministry did not comment on the fact women have to live without income for several months after receiving the maternity benefit in which case we cannot talk about equal treatment.

Suutre suggested paying out the benefit in installments as one possible solution for women headed for maternity leave. In other words, shortcomings in the income tax act would need to be remedied by amending the health insurance act.

Even though the amendment was drawn up by the finance ministry, the shortcomings should have been picked up by members of the Riigikogu Finance Committee who were in charge of the bill in the parliament.

Members of the committee who talked to Postimees admitted the aspect didn’t even come up during deliberations but agreed the situation is unfair. Committee chairman Mikhail Stalnuhhin (Center Party) initially told Postimees that while an exception and retroactive compensation is needed, he will make a corresponding proposal to the next composition of the Riigikogu.

Stalnuhhin contacted Postimees a little later and said he will try to address the problem before elections. “We are looking into possibilities of amending another piece of legislation to find a solution during the time of this composition,” he said. MP Kersti Sarapuu (Center) echoed Stalnuhhin’s assurance soon after.

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