A lot of variables.
Employees who have received the Covid-19 Temporary Wage Subsidy Scheme (TWSS) or the Pandemic Unemployment Payment (PUP) in Ireland will likely receive a tax bill this week.
PUP and TWSS payments were not taxed in real-time and instead are liable to income tax and USC at the end of the year.
Earlier this year, Revenue confirmed that all employees will be presented with a Preliminary End of Year Statement in January 2021 detailing their income tax and USC position for 2020.
Employees will be given the option to pay partially or fully any income tax and USC liability.
Otherwise, the interest-free liability will be collected by Revenue by reducing employees’ tax credits over four years, starting in January 2022.
“The notification of the tax liability from Revenue is likely to come as a surprise to many and a shock to others," said Marian Ryan, Consumer Tax Manager at Taxback.com.
"A lot of PUP and TWSS recipients are simply unaware that these payments will have given rise to a tax liability and even of those who expected it, many will be surprised as to exactly how much they owe. For many more, the news will simply be the source of anxiety for people who are already financially stretched.
"The main thing to bear in mind at this point is that Revenue have already said that this tax liability will not fall due this year, or even next year. Although the option is available to taxpayers to clear the underpayment, people are not expected to make a lump sum payment.
"Instead, what will happen is that Revenue will reduce a person’s tax credits over a period of between 2 – 4 years, commencing in 2022."
So how much could recipients owe?
The amount someone is charged will vary from person to person depending on a variety of factors, including their circumstances, their earnings pre and post TWSS and if their employer subsidised the TWSS with additional income and topped up the employee’s gross weekly wage.
Taxback.com have provided the following examples for TWSS, however, it stressed this does not take into account additional tax credits and expenses that TWSS recipients can claim in order to reduce their liability.
- A typical worker on €35,000 who received the TWSS payment which wasn’t topped up by their employer can now expect to owe Revenue approximately €429. If the same employee received the TWSS and their employer topped-up their gross weekly wage, they can now expect to owe approximately €1,334 in PAYE & USC.
- Similarly, a worker on €67,500 whose income was topped up by their employer to the maximum allowable amount would now expect an underpayment in the region of approximately €2,837.
- The same employee on €67,500 pre-covid salary, who received the TWSS, but without a top up from their employer on their gross weekly wage, could potentially be due a tax refund (PAYE & USC) of approximately €1,307. The reason for this potential refund is that their 2020 income would have been significantly reduced when they were in receipt of the TWSS and they would have paid a substantially higher amount of PAYE and USC in Jan/Feb 2020 on the assumption that their income would have been €67,500 for the entire year.
In terms of the PUP, Marian Ryan said underpayments for those in receipt of the PUP will vary greatly depending on the pre-covid earnings, how long they received the PUP for, and if they have returned to work on a similar or reduced income.
"The best way to approximate what your potential underpayment would be is to look at your total 2020 income (employment income and PUP payments)," Ryan said.
"If these two combined are below €16,500 it is unlikely you will have an underpayment. If it is between €16,500 and €35,500, you will potentially have to pay 20% of the PUP received as PAYE and an additional 4.5% approx of USC.
"If your income is over €35,500 for 2020, the potential PAYE due could be upwards of 40% of your PUP received along with an additional 4.5% of USC to be paid."
