Dáil Éireann Debate, Tuesday - 22 February 2022
269. Deputy Brendan Griffin asked the Minister for Finance if he will provide clarification on a matter (details supplied) in relation to the taxation of the pandemic unemployment payment; and if he will make a statement on the matter. [9809/22]
View answerRevenue is independent in the exercise of its functions. However, I have been advised by it as follows:
Revenue's process for taxing DSP payments, including the Pandemic Unemployment Payment (PUP) seeks to cater for the different scenarios that can arise across the PAYE case base.
Following significant consideration by Revenue, the basis of taxation adopted aims, as far as possible, to collect the right amount of tax at the right time while avoiding an accumulation of liabilities at year-end in as many of the different scenarios as possible. While the option proposed has merit in some less complex cases, (like in the worked examples provided in the details supplied with the question), it could lead to significant hardship in many cases, particularly where credits were allocated other than 50/50 between jointly assessed couples.
For example, married couples who are jointly assessed may choose to alter ‘the split’ in the tax credits they jointly share. In such circumstances, where one or both was on the PUP, applying the process proposed could result in significant financial hardship where the allocated tax credits to one spouse or civil partner does not cover the tax due.
By way of example, a jointly assessed couple may opt to have the married personal tax credit allocated to one partner for 2021 rather than split evenly. This would result in a scenario where one has tax credits of €4,950 for the year (made up of the married personal tax credit of €3,300 and the PAYE tax credit of €1,650) while the other has the remaining PAYE tax credit of €1,650. If the person on the lower tax credits was on the maximum rate of PUP, s/he could have a potential liability of €995 after 26 weeks if those credits were allocated on a ‘week 1’ basis.
When a person who was in receipt of PUP payments returned to work in 2021, his or her tax credits and rate band were generally restored on a ‘week 1 basis’. This was to avoid any possible financial hardship that could arise from an increased tax liability for that pay period under the ‘cumulative basis’. However, a person who received the maximum rate of PUP could still have a tax liability at the end of the year because the tax due exceeded his or her available tax credits.
For a person who received less than the maximum weekly rate of PUP, his or her tax credits may have exceeded the tax due by between €3.46 and €22.86 (depending on which PUP rate applied). In such circumstances it was more beneficial to the person that his or her tax credits were restored on the ‘cumulative basis’ rather than the ‘week 1’ basis, thereby ensuring that any over-deducted tax was refunded through salary.
In some instances where a person returned to work, the final PUP payment (paid in arrears) overlapped with the first salary payment resulting in an overpayment of tax for that period because the necessary adjustments to the tax credits had not taken place. For a person on the maximum rate of PUP, the additional tax deducted minimised his or her liability at year end, while for employees on the lower rates of PUP, the additional tax deducted was refunded once their credits were restored to the ‘cumulative basis’.
Revenue has assured me that taxpayers that were placed on a ‘week one’ basis can opt to be switched back to the ‘cumulative basis’ where it is advantageous for them to do so. A very sizeable proportion of PUP recipients chose this option in 2021 and where an overpayment existed, it was repaid to them through their salary.
When the Income Tax Return for 2021 is submitted after year end and there is an overpayment of tax in the year but there is an outstanding liability for other years, the refund due is firstly offset against the outstanding amounts before any remaining balance is repaid. This is the normal practice and applies to 2021 as it does for any other year.
Finally, Revenue has assured me that it is constantly seeking to ensure that its processes do not disadvantage taxpayers and that it stays as close as possible to the principle that people should pay the right tax at the right time.
