Irish workers to have reduced tax credits from 2022

Revenue has announced that workers affected by COVID-19 will repay the taxes owed on the Pandemic Unemployment Payment (PUP) and the Temporary Wage Subsidy Scheme (TWSS) over a four year period, beginning January 2022.

Employees will also be given an opportunity to pay their income tax or USC liability (either in full or partially) to Revenue directly.

In December 2021, every employee in Ireland will receive a Preliminary End of Year Statement which will display the amount of TWSS or PUP payments they received. The statement will also provide a calculation of income tax and USC charged to each worker over the course of 2020, and determine whether there has been any over or under-payment.

Workers will then have the opportunity to repay their tax liability.

If an employee declines to pay the tax bill, Revenue will collect the liability, interest free, by reducing their tax credits over a period of four years in order to minimise any financial hardship.

Unaware

The official statistics indicate that, since it was introduced in March, over 550,000 employees have had their pay subsidised by the Temporary Wage Subsidy Scheme, while 515,000 have received the PUP.

The latest Taxback.com Taxpayer Sentiment Survey has revealed that more than half (57%) of respondents receiving either the TWSS or PUP payments were not aware that a future tax liability could potentially be in the pipeline.

With that in mind, we've put together this guide to outline everything you need to know about these payments and what to do if you have a tax owing at year end.

The average Irish tax refund is €1,880

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What are the pandemic payments?

Pandemic Unemployment Payment (PUP)

The government introduced a 'COVID-19 Pandemic Unemployment Payment' – of €350 per week for employees and self-employed people who have lost their employment due to the coronavirus outbreak. This has been extended until April 2021.

If your average weekly earnings are above €350, your weekly rate of PUP is €300. If your weekly earnings are between €200 and €300, your weekly rate of PUP is €250. If your weekly earnings are less than €200, you'll be entitled to €203.

In order to be eligible for the payment you must be:

an employee or self-employed immediately before Friday 13 March 2020
aged between 18 and 66
unemployed or be temporarily laid off from work
living in the Republic in Ireland

Temporary Wage Subsidy Scheme (TWSS)

The purpose of the Temporary Wage Subsidy Scheme is to keep employees registered with their employers and to enable employers to continue to pay wages during the pandemic.

In short, employees with a previous average net pay of up to €412 per week (roughly €24,400 per year) receive a subsidy of 85% of their previous net weekly pay.

A payment of up to €350 applies where the employee's net weekly pay is between €412 - €500.

A 70% subsidy is payable where an employee's previous average net weekly pay is more than €500 but not more than €586, with maximum cap of €410.

In order to qualify, an employer must:

declare to Revenue that they have experienced a minimum of 25% decline in turnover (between 14 March 2020 and 30 June 2020) due to the pandemic
be unable to pay normal wages and normal outgoings fully
keep their employees on the payroll
only claim for employees that have been on the payroll on 29 February 2020 and have made payroll submission on their behalf to Revenue in the period from 1 February 2020 to 15 March 2020

The average Irish tax refund is €1,880

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What are the tax implications of the COVID-19 payments?

Both the TWSS and PUP payments are considered taxable forms of income.

However, the payments were not taxed at source.

This means that most full-time workers in receipt of TWSS or PUP face tax bills at year-end.

Sample case studies:

Varying degrees of impact

The impact of the pandemic payments can vary considerably depending on personal circumstances.

The good news is that those on low incomes that are below the income tax threshold should be largely unaffected. In addition, those whose employer didn't top-up the TWSS payment will have incurred a lower income during the pandemic, but should now also have a lower tax liability at the end of the year.

Meanwhile, a worker on a salary of €35,000 will have a larger underpayment of tax at the end of the year, than someone who earns €38,000. This is because the €35K workers' employer will get a TWSS of €390.62, where as a €38K salaried worker is only entitled to a payment of €350.

Of course, certain cohorts or workers will be affected more than others. It would appear those previously termed, as "the squeeze middle" with incomes between €35,000 and €70,000 are likely to suffer a major financial blow.