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 in legislation 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 mechanism to tax the PUP, in common with other Department of Social Protection (DSP) payments, including Jobseekers’ Benefit and Illness Benefit, is by reducing the recipient’s tax credits and rate bands. However, in 2020 the PUP was not taxed in ‘real-time’ in the normal manner, meaning the collection of any tax due was deferred until year end. Likewise, employees that received subsidies under the Temporary Wage Subsidy Scheme (TWSS), which ran from 26 March 2020 to 31 August 2020, were not taxed in ‘real-time’ on those payments. Instead the collection of tax and Universal Social Charge (USC) was deferred until the end of 2020.
Revenue advise me that this approach to the taxation of both schemes was based on an expectation at the time that the emergency supports would be short-term in nature, which turned out not to be the case due to the continued prevalence of COVID-19. Revenue has also advised me that the continuation of the PUP into 2021 and the operation of the Employment Wage Subsidy Scheme (EWSS), which replaced the TWSS from 1 September 2020 have re-established the practice of operating PAYE in the normal (real-time) manner for such payments. As such the ‘year-end’ taxing arrangement that applied to both the PUP and TWSS in 2020 is no longer applicable in 2021.
Finally, it is important to note that Revenue acts independently in the administration of the tax system. Therefore, once legislation provides that an income source is taxable, the operation of tax deductions on such income is a matter exclusively for Revenue to determine.
