Lisa Lokasto

The main controversy is whether carers should be taxed at all but that aside, let’s break down the changes.

Recent information sharing arrangements between Revenue and DSP regarding Carer’s Allowance and Carer’s Benefit have caused concern among family carers and present an important issue for tax advisors Understanding what has changed, what hasn’t, and helping clients navigate this area.

What has changed (and what hasn’t)

Both Carer’s Allowance and Carer’s Benefit are taxable. This has always been the position.

What has changed is that from 1 January 2026 the DSP now shares details of these payments directly with Revenue. As a result, Revenue requires but does not depend on self declaration by taxpayers. Approximately 34,600 carers were written to in late 2025 / early 2026 to notify them of this reporting change.

According to press reports, Revenue has confirmed that it does not intend to undertake a retrospective review of prior years to pursue tax liabilities arising solely from the new data-sharing arrangements. “Solely” could be an important word there.

Revenue has also emphasised that it will treat individual circumstances with empathy and work with taxpayers on appropriate payment arrangements where liabilities arise.

Government figures indicate that fewer than 10% of carers in receipt of Carer’s Allowance or Carer’s Benefit are expected to have an income tax liability. Where a liability does arise, it is generally described as modest, though that may be subjective for many families.

So, what’s all the fuss?

It helps to separate two distinct systems, which are often confused:

1. DSP entitlement (means test)
   Whether a person qualifies for Carer’s Allowance, and at what rate, based on household means.
2. Tax treatment (Revenue)
   Whether the payment gives rise to, or contributes to, an income tax liability and the rate.

Where Carer’s Allowance or Carer’s Benefit is the client’s only source of income, they are unlikely to owe income tax, as their total income will typically be covered by their available tax credits.

In a Statement to The Journal . Revenue said “The focus of the new process is on the timely collection of any tax on a forward looking basis,” … It went on to say that any underpayment of income tax that does arise would be collected over an extended four-year period from 2027 onwards, through adjustments to tax credits.

However, clients in receipt of Carer’s Allowance or Benefit who are in the PAYE system (because they may have been working a few hours a week) may have tax. Pre-2026 many carers didn’t know this allowance was taxable income. Revenue wrote out to them clarifying the position.

Where the trouble actually starts: entitlement first, then tax

Carer’s Allowance is means tested, and for couples the DSP assesses combined household means, taking into account the income of a spouse or partner.

The information sharing is both ways. Revenue and the DSP enjoy very close working relations. “A wide range and volume of data is, consequently, exchanged on both a systematic and a case specific basis”

If circumstances change, for example, if the spouse’s income increases, this can result in the claimant’s rate being reduced or entitlement being lost altogether. That is not a tax issue; it is an entitlement (means test) issue, and it is entirely plausible that letters may issue from DSP confirming that a person no longer qualifies. They may seek to recoup overpayments.

This distinction is important, as some of the concern being reported publicly appears to stem from entitlement reviews rather than Revenue action.

How joint assessment affects the tax

Where a couple is jointly assessed, they can allocate most tax credits and the standard rate band between them. In practice, many couples allocate all or most of the credits and standard rate band to the higher‑earning PAYE spouse.

This is where carers can be caught off‑guard.

• One spouse is fully within the PAYE system and has all (or most) of the couple’s transferable tax credits and standard rate band allocated to them.
• The other spouse has little or no earned income and is receiving Carer’s Allowance, which is a taxable DSP payment.

Under joint assessment, all taxable income of both spouses is aggregated and assessed on the assessable spouse.

Once Revenue includes the Carer’s Allowance in the couple’s overall taxable income position, the existing allocation of tax credits and standard rate band may no longer be sufficient to shelter all income from tax. Worse, part of the income can even be pushed into the 40% tax band, meaning the couple may face an unexpected additional tax liability.

The current controversy reflects a broader policy question about how the State values unpaid care. Until that question is resolved, carers and their families have to navigate two separate systems (entitlement/tax) with very different objectives. Clarity about how those systems interact is essential to avoiding surprises.

Lisa