Tax credits for multiple years may be used, which Taxback.com says equates to a reduction in take-home pay.
Full-time workers who have been in receipt of Covid-19 benefits will likely face a tax bill at the end of the year, and will see their tax credits used to foot the bill.
Minister for Finance Paschal Donohoe said, in response to a question in the Dáil last week, that the Temporary Wage Subsidy Scheme (TWSS) payments to employees are liable to both income tax and Universal Social Charge.
Donohoe was responding to a question which asked “the estimated number of taxpayers in receipt of the Temporary Wage Subsidy Scheme who will have an additional tax, USC and/or PRSI liability as a result at the end of 2020, and the average amount liable”.
He said the tax bills would not be calculated in real time and instead will be calculated by Revenue as part of the ‘End of Year Review’ process. Donohoe said the level of tax and USC due by any employee may be reduced or eliminated by the amount of unused tax credits available and can also be further reduced if the employee has any additional tax credits, such as health expenses, to off set.
If there are further tax and USC liabilities following the allocation of unused credits, tax credits will be reduced for further years, which Donohoe said would minimise "any financial hardship to the greatest extent possible."
Experts at
Taxback.com say that although the reduction in tax credits, which will equate to a reduction in take-home pay, had been eluded to in recent weeks, this was the first confirmation they had seen of the intended approach.
It said Donohoe's comments offered some clarity to concerned workers as to how any underpayment of tax will be resolved.
Taxback.com say that although the Minister’s response suggests a person’s unused tax credits could substantially reduce or eliminate any tax liability that may arise, this is unlikely to be the case for most workers.
"Anyone whose total 2020 employment income and TWSS/PUP is under €16,500 will have no PAYE liability and a tiny USC liability (between 0.5% and 2% of the TWSS/PUP Payment)," said Marian Ryan, Consumer Tax Manager, Taxback.com.
"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 - €1972 – and it’s unlikely that unused credits would make much of a dent in this.
"The Minister points in particular to the use of medical expense tax relief entitlements to reduce this tax bill. We absolutely agree that medical expense relief is underutilised in this country, and we are always calling on more people to get what they are owed in that regard.
"That said however, relief on medical expenses is 20% so to clear an underpayment of say €1,300, a person would need to have €6,500 in medical bills. In general, a person might only spend an average of €200-€250 per year on doctor visits and possibly some medicine."
