ON Friday next, January 15, thousands of taxpayers throughout the country will receive notification from Revenue that their Preliminary End of Year Statement is now available, which will inform them that they now have a tax liability as a result of receiving either the Pandemic Unemployment Payment (PUP) or the Temporary Wage Subsidy Scheme (TWSS).
Taxback.com say the amount people owe will vary vastly depending on a range of actors such as pre-payment income, employer top-ups etc., but the tax experts are pre-empting a raft of calls from people worried about the bills and possibly surprised that they even have one. In light of this, the tax refund specialists have set out five steps they say people can take which might alleviate any concerns they have, and help them deal with any unwelcome news.
Marian Ryan, Consumer Tax Manager at Taxback.com, explained: “The notification of the tax liability from Revenue is likely to come as a surprise to many and a shock to others.
“A lot of PUP and TWSS recipients are simply unaware that these payments will have given rise to a tax liability and even of those who expected it, many will be surprised as to exactly how much they owe.
“For many more, the news will simply be the source of anxiety for people who are already financially stretched.
“The main thing to bear in mind at this point is that Revenue have already said that this tax liability will not fall due this year, or even next year.
“Although the option is available to taxpayers to clear the underpayment, people are not expected to make a lump sum payment. Instead, what will happen is that Revenue will reduce a person’s tax credits over a period of between two to four years, commencing in 2022.”
Taxback.com say that anyone who receives a notification of a liability from Revenue should consider the following five steps:
Do not panic — bear in mind that these monies will not have to be paid right away.
Do not to be alarmed at the amount owed — the Preliminary End of Year Statement will not include all tax credits and expenses that a person may be entitled to, so the amount owed could well be lower – or some people may even be due a refund
If you have concerns or want to address this bill, then log on to MyAccount portal to go through your reliefs and refunds eligibility. If it all seems too convoluted or time consuming, then engage an expert to give you the advice you need and walk you through what you need to do
Use this as an opportunity to get your tax affairs in order. Most PAYE taxpayers never apply for all the refunds they are owed, and of those who do, many are unlikely to do so every year.
You can claim as far back as four years, so there are tens of thousands of workers out there to whom the Revenue actually owe money.
The main reliefs that would apply to the greatest number of people in 2021 are most likely Medical Expenses; Flat Rate Expenses; eWorker’s relief; the Stay-and-Spend Initiative; and Tuition Fees. Though there are a raft of other reliefs that might apply to an individual
Find out if your employer is in a position to cover any of the liability. This is absolutely not an option for everyone.
Employers all over the country are struggling financially as it is. But some employers, albeit a small number, might be in a position to cover some of the costs. Revenue have already clarified the tax position and any such payment will not be treated as BIK. It’s worth looking into.
How much could I owe?
Mr Ryan advised: “The amount people will owe will vary greatly from person to person, depending on their circumstances, their earnings pre and post TWSS and if their employer subsidised the TWSS with additional income and topped up the employee’s gross weekly wage.
“For example, a typical worker on €35,000 who received the TWSS payment which wasn’t topped up by their employer can now expect to owe Revenue approximately €429.
“If the same employee received the TWSS and their employer topped-up their gross weekly wage, they can now expect to owe approximately €1,334 in PAYE & USC.
“Similarly, a worker on €67,500 whose income was topped up by their employer to the maximum allowable amount would now expect an underpayment in the region of approximately €2,837.
“Interestingly, the same employee on €67,500 pre-covid salary, who received the TWSS, but without a top up from their employer on their gross weekly wage, could potentially be due a tax refund (PAYE & USC) of approximately €1,307.
“The reason for this potential refund is that their 2020 income would have been significantly reduced when they were in receipt of the TWSS and they would have paid a substantially higher amount of PAYE and USC in Jan/Feb 2020 on the assumption that their income would have been €67,500 for the entire year.
“None of the figures above take into account additional tax credits and expenses that TWSS recipients can claim in order to reduce their liability.”
Taxback.com say the potential PAYE and USC underpayments for those in receipt of the PUP will vary greatly depending on the pre covid earnings, how long the received the PUP for, and if they have returned to work on a similar or reduced income.
Ms Ryan continued: “For example, if we look at the €35,000 and €67,500 earners and assume, they received the PUP for 23 weeks and returned to work on the same salary as pre covid.
“The €35,000 earner would have an approximate underpayment of €1,347.88 and the €67,500 earner would have an underpayment in the region of €2,492.00.
“However, people may not have returned to work on the same income level and may have had to take a pay cut.
“The best way to approximate what your potential underpayment would be is to look at your total 2020 income (employment income and PUP payments).
“If these two combined is below €16,500 it is unlikely you will have an underpayment. If it is between €16,500 and €35,500, you will potentially have to pay 20% of the PUP received as PAYE and an additional 4.5% approx. of USC.
“If your income is over €35,500 for 2020, the potential PAYE due could be upwards of 40% of your PUP received along with an additional 4.5% of USC to be paid.
“There are a never-ending number of variables involved, but it is fair to say that the higher your total 2020 income is, the higher the resulting underpayment is likely to be.
“As always, it will disproportionately affect the middle-income earners who will have seen a substantial drop in income and will still face underpayments and reduced tax credits into the future.”