Workers receiving Covid-19 income supports from the Government may face a tax bill at the end of the year, depending on a number of factors.
Many workers in Ireland have been getting financial support from the Government during the Covid-19 pandemic.
A total of 410,000 employees in Ireland are currently receiving payments through the Temporary Wage Subsidy Scheme (TWSS), and almost 568,000 employees have received a subsidy since the scheme was introduced in March. Meanwhile, more than 730,000 people have applied for the Pandemic Unemployment Payment (PUP) since the start of the pandemic.
However, neither scheme is being taxed in real time through the PAYE system, which means that workers may become liable for tax at the end of 2020.
In response to parliamentary questions last week, Minister for Finance Paschal Donohoe, TD, said that it is “not yet possible” to estimate the number of people who may have a tax bill at the end of the year arising from the PUP or TWSS, or how much someone may owe.
The final calculation of end-of-year liability for each person is dependent on a range of factors, he added, including a person’s civil status, available tax credits, the amounts received during the year under PUP or TWSS, any top-up payments made by employers, and other entitlements such as health expenses.
“The level of tax and USC due by any person at year end in respect of TWSS and PUP payments may be reduced or eliminated by the amount of unused tax credits available,” Donohoe said. “Any liability due may also be further reduced if the person has additional tax credits, for example health expenses, to offset.”
Recently, Revenue put all employees receiving the PUP or TWSS on a ‘week one basis’ to preserve unused tax credits that can offset any end-of-year liabilities.
If any tax and USC liabilities still arise following the allocation of unused credits, Donohoe said that Revenue will work with the person to collect the tax over “an extended period”, reducing their tax credits for future years and “minimising any financial hardship to the greatest extent possible”.
How this could impact workers
Marian Ryan, consumer tax manager at Taxback.com, said that many full-time employees who have received the PUP or TWSS are now starting to realise that they will likely have a “build-up of tax liability at the end of the year, even though their income may have reduced or stayed level”.
“There may be some solace in the confirmation that it will effectively be collected in increments over time – perhaps one or two years,” she said.
“But while the term ‘reducing tax credits’ might not mean anything to people, it’s important that workers understand that it will ultimately mean a reduction in weekly or monthly take-home pay during that period.”
Taxback.com calculated that an average worker on a salary of €38,000, for example, could find the following changes to how much income tax they pay, assuming tax and USC rates and cut-off points remain the same for the next two years.
Annual additional tax breakdown. Table: Taxback.com
Despite the measures discussed by Donohoe, Ryan added that a substantial reduction in tax liability is unlikely for most workers. “Anyone whose total 2020 employment income and TWSS or PUP is under €16,500 will have no PAYE liability and a tiny USC liability (between 0.5pc and 2pc of the TWSS or PUP).
“But anyone with earnings above that will have to repay the tax. Someone on a salary of €38,000, for example, could face a liability of anywhere from €796 to €1,972, and it’s unlikely that unused credits would make much of a dent in this.”
