Wednesday, 17 February 2021

Questions (139, 160, 161, 162, 163, 164, 165, 177, 178)

Fergus O'Dowd

Question:

139. Deputy Fergus O'Dowd asked the Minister for Finance if concerns raised in correspondence by a person (details supplied) will receive a response; and if he will make a statement on the matter. [7929/21]

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Pa Daly

Question:

160. Deputy Pa Daly asked the Minister for Finance if he will report on the way in which communications were made to the public relative to taxation on the Covid-19 pandemic unemployment payment scheme for recipients in 2021; and if he will make a statement on the matter. [8668/21]

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Patricia Ryan

Question:

161. Deputy Patricia Ryan asked the Minister for Finance the steps he will take to prevent recipients of the pandemic unemployment payment that return to work in 2021 becoming liable in 2021 for the tax due (details supplied); and if he will make a statement on the matter. [8704/21]

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Rose Conway-Walsh

Question:

162. Deputy Rose Conway-Walsh asked the Minister for Finance the reason persons are being taxed on a week one basis for more than a one-week period; and if he will make a statement on the matter. [8710/21]

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Rose Conway-Walsh

Question:

163. Deputy Rose Conway-Walsh asked the Minister for Finance the reason the tax on the pandemic unemployment payment is taken from the entire gross wage while the top up by the employer was already taxed during 2020; and if he will make a statement on the matter. [8711/21]

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Rose Conway-Walsh

Question:

164. Deputy Rose Conway-Walsh asked the Minister for Finance the reason the rate band reductions were applied on tax credit certificates issued on 4 February 2021 when underpayments were not meant to be paid until 2022 commencing over a five year period; the reason no notification was given; and if he will make a statement on the matter. [8712/21]

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Rose Conway-Walsh

Question:

165. Deputy Rose Conway-Walsh asked the Minister for Finance the reason the tax credits of workers coming off the pandemic unemployment payment and starting back to work were deleted; and if he will make a statement on the matter. [8713/21]

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Réada Cronin

Question:

177. Deputy Réada Cronin asked the Minister for Finance if he will request the Revenue Commissioners to waive taxation arising out of the pandemic unemployment payment given the extraordinary circumstances of the pandemic and the consequent sacrifice and financial suffering endured by persons; and if he will make a statement on the matter. [8832/21]

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Réada Cronin

Question:

178. Deputy Réada Cronin asked the Minister for Finance if the Revenue Commissioners will extend over a suitably long period the amount of extra taxation due over pandemic unemployment payments to assist workers and their families; and if he will make a statement on the matter. [8833/21]

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Written answers (Question to Finance)

I propose to take Questions Nos. 139, 160 to 165, inclusive, 177 and 178 together.

The Pandemic Unemployment Payment (PUP) is a social welfare payment for workers who have become unemployed due to the COVID-19 pandemic. PUP payments are classified as income supports and are subject to income tax. The taxation arrangements for the PUP were legislated for in Finance Act 2020 which reflects the standard approach to taxation of social welfare type payments, which means they are liable to income tax but exempt from the Universal Social Charge (USC) and Pay Related Social Insurance (PRSI).

The PUP along with the Temporary Wage Subsidy Scheme (TWSS) was introduced in March 2020 as emergency measures to deal with the impact of the COVID-19 pandemic on the economy. The Government objective at that time was to get much needed assistance to employees as quickly as possible. To meet that objective, both subsidies were not taxed in ‘real-time’ in the normal manner, meaning the collection of any tax due was deferred until year end. This approach was based on an expectation at the time that the emergency supports would be short-term in nature, which turned out to not be the case due to the continued prevalence of COVID-19.

In relation to the Deputy's suggestion that I ask Revenue to waive any liabilities arising from the payment of the PUP, questions of equity arise. Other income earners in receipt of comparable “normal wages” are taxable on those wages, in the interest of equity, payments under the PUP are subject to income tax. Furthermore, Revenue is independent in the exercise of its functions.

Revenue have advised me as follows:

The impact of the ‘year-end’ approach is that some PUP and TWSS recipients now have an additional tax liability for 2020. As confirmed by Revenue last September, these liabilities will be collected, interest free, by reducing the employees tax credits over four years, starting in January 2022. Alternatively, an employee can opt to fully or partially pay any additional liability as a single sum through the Payments/Repayments facility in the myAccount service. These arrangements remain in place and are fully available to PUP and TWSS recipients.

When a PUP recipient returns to work, he or she should immediately cease the PUP claim with the Department of Social Protection (DSP). In turn, DSP will notify Revenue that the payment has ceased, and Revenue will then adjust the employee’s tax credits accordingly. It is not the case that the employee is taxed on the full year calculation of PUP, where a return to work has occurred during the year, with a requirement to seek a refund for the overpaid amount (as suggested in Deputy O'Dowd's question). This is purely a mechanism to reflect the fact that the person is in receipt of PUP. For a person who is in receipt of PUP at the start of the year, the weekly amount is annualised on the Tax Credit Cert (TCC), with knock on impacts on the tax credit and standard rate cut off point, as if that person will be on PUP for the full year. When the person comes off PUP, the TCC is amended to reflect the fact that the payment has ceased. A revised instruction (Revenue Payroll Notification) will issue to the relevant employer to reflect the updated position and the revised TCC will issue to the employee via the online myAccount service.

Revenue has published information on the taxation of the PUP at link: www.revenue.ie/en/life-events-and-personal-circumstances/pup-tax-liability/index.aspx, which may be of interest to the Deputies. Revenue has also very clearly set out how the taxation of the PUP and EWSS will occur in 2021.

The replacing of the TWSS with the EWSS from 1 September 2020 and the continuation of both that scheme and the PUP into 2021 has re-established the practice of operating PAYE in the normal (real-time) manner for such payments. However, those people receiving PUP payments in 2021 will only pay tax when they return to work. The mechanism to tax PUP payments is by reducing the recipient’s tax credits and rate bands.

Income tax is normally calculated using the ‘cumulative basis’, which means that for each pay day, all earnings and all tax credits are accumulated, and the tax due is calculated on a year to date basis. This ensures employees pay the correct amount of tax as it falls due. In exceptional circumstances, employees may be placed on the ‘Week 1’ basis (also known as the ‘non-cumulative basis’). This normally occurs where there is a large reduction in tax credits that could cause financial hardship or where there is a lack of information on prior employments within the current tax year. Where employees are placed on a ‘Week 1’ basis, income tax is deducted on a pay-period to pay-period arrangement, without reference to previous pay or tax paid. As such the employee will not suffer a large deduction of tax in a pay-period but will also not receive any refunds that might be due until the ‘cumulative basis’ is implemented. These normal taxing arrangements are operating in respect of PUP payments received by employees in 2021 and are in accordance with the legislation as set down.

Regarding the TWSS, it is important to note that any additional ‘top up payments’ made by employers to employees during 2020 under the TWSS were taxed in the normal (real-time) manner and are generally not included in the year-end arrangement. Top-up payments in addition to the basic subsidy would have very likely given rise to a tax liability, even if only paid over the course of 12 weeks. It was therefore wholly appropriate that PAYE operated in respect of such payments in the normal way as it is did for other earners through the period, with the deduction of income tax and USC in 2020.

Specifically, regarding the taxation of PUP, the following points are also relevant:

- A single person currently in receipt of the PUP will continue to receive the payment gross and tax is not collected from these payments until s/he returns to work. This is also the case where both married spouses/civil partners are receiving PUP;

- 50% of all PUP recipients are not on the highest rate of €350 per week. A single person’s weekly tax credits will fully cover any tax due on weekly PUP payments at the €203, €250 and €300 payment rates.

- For these rates, the employee will in fact have excess weekly tax credits of between €3.46 and €22.86 which will build up for the period s/he is out of work. This means that the employee will have additional tax credits to offset against income when s/he returns to work;

- For a single person in receipt of PUP of €350 per week, his/her weekly tax credits cover 90% of the tax payable, leaving tax due of approximately €6.50 per week.

USC is not chargeable on PUP payments which will either fully or partially offset any tax impact on overall net wages and should be borne in mind.

If a single person is in receipt of the PUP from January 2021 to end of June 2021 before then returning to work (i.e. 26 payments of PUP at €350 per week = €9,100), the total outstanding tax due on the payments received at that point is approximately €170. By adjusting the employee’s tax credits while he or she is receiving the PUP payment, as outlined above, this, eliminates or reduces any liability at year end. Any such liability will also be fully or partly offset by the reduction in the total USC liability for the year because, as explained above, PUP payments are not liable to USC. In effect, this means that, in most cases, the net take home pay of PUP recipients that return to employment will be unaffected by the taxation measures.

The position for married couples/civil partners is slightly different. Where a couple is taxed under joint assessment and one spouse or civil partner is in receipt of the PUP but does not have sufficient tax credits to cover the tax due, the tax credits of the working spouse or civil partner are reduced to ensure that the balance of the tax is collected during the year. Effectively, the personal tax credit of the PUP recipient is not assigned to the working spouse in the usual manner as it is instead allocated to the excess PUP amount over and above the (PUP) recipient’s PAYE tax credit and rate band.

Finally, in taxing PUP payments in accordance with the legislation, Revenue is seeking to ensure, as far as possible, that people do not end up with a tax liability at the end of 2021 that will have to be paid in future years, particularly where there is already an underpayment in respect of 2020. The alternative ‘year-end’ approach would result in employees having further underpayments in the years ahead in addition to their 2020 liabilities, which could cause financial difficulties for them down the road. The normal deduction arrangements now applying to both EWSS and PUP for 2021 seeks to insure against this, as tax credits are set aside for offset against any tax due. The arrangement also ensures an equity of tax treatment between those receiving the PUP and employees who are working and receiving similar levels of wages (although the person on PUP will have a lower USC liability).