Thousands of workers who received the Pandemic Unemployment Payment (PUP) or the Temporary Wage Subsidy Scheme (TWSS) have now received tax bills for 2020.
Here is what you need to know:
Why do I have to pay tax on these State subsidies?
The PUP and TWSS were introduced very quickly when the Covid-19 pandemic started and there was no process in place to allow for these subsidies to be taxed at source. Revenue did highlight from the start that these payments were taxable but were not taxed at the time, and instead liable to income tax at the end of the year. The upshot is that some workers are now getting 2020 tax bills in respect of the payments they received during 2020.
How will I know if I am affected?
Revenue will inform anyone who availed of State wage subsidies during 2020 of any outstanding tax liabilities owing on those payments. All PAYE workers will by now have been issued their Preliminary End of Year Statements, which can be accessed online via myAccount. Revenue will also write to those with a liability in the first quarter of the year.
The Preliminary Statement will show:
- detail of any income received and reported by your employer(s), including TWSS;
- information on the amount of PUP you received, if any;
- a preliminary calculation of your income tax and USC for 2020; and
- whether your tax position is balanced, underpaid or overpaid for the year.
It is important that you check all the details on your Preliminary Statement to ensure they are correct.
Is this tax bill final?
Not necessarily – the preliminary end-of-year statement sets out a provisional tax position for the year, based on the information that Revenue have to hand. You have an opportunity to make sure you claim any additional tax credits you may be eligible for, such as health expenses, spouse tax credit, lone parent credit, home carer credit, widow credit in year of bereavement, incapacitated child credit, stay and spend credit etc. To claim any additional credits and finalise your tax bill you complete and submit a tax return. Once submitted a statement of liability will then issue from Revenue which sets out your final tax liability for the year.
How do I pay my final tax bill?
If you have a balance owing you have the option to fully or partially pay the liability through the “Payments/Repayments” facility in Revenue’s myAccount. To minimise the immediate financial impact, you also have the option of allowing Revenue to collect the balance owing by reducing your tax credits over four years. This is an interest free option with the reduction of tax credits not starting until January 2022.
How much will I owe?
Your tax liability will depend on several factors, including your personal circumstances, the tax credits you are entitled to and the amount of tax you have already paid during the year.
For those who received payments under the PUP and/or TWSS the amount of tax owed will be affected by factors such as:
- How long you were on the PUP and the different rates of PUP applicable. For example, the standard weekly tax credits for a single person of €63.46 should fully cover any tax liability arising on PUP payments of less than €300 per week.
- The unused tax credits you may have accumulated while receiving the payments. Revenue placed all employees in receipt of these payments on a ‘Week 1 basis from June 21st, 2020 to minimise the amount of tax they might owe at the end of the year.
- The additional tax credits you may be entitled to but have not yet claimed for 2020 e.g. health expenses, spouse tax credit, lone parent credit, home carer credit, widow credit in year of bereavement, incapacitated child credit, stay and spend credit etc.
- For those on TWSS the top up amount, if any, paid by your employer.
- Your total income from all sources for the year.
Although not obliged to, Revenue has confirmed employers can cover the tax shortfalls without incurring a benefit-in-kind liability for their employees. However, as those claiming the TWSS have typically been the most affected by difficult trading conditions during the pandemic the expectation is that not many employers will do this.
If you have any queries or require assistance in relation to the above please do not hesitate to contact MLMG Payroll Services on 07493 21420 or firstname.lastname@example.org.