Seán Canney (Galway East, Independent)
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165. To ask the Minister for Finance the basis of the decision by the Revenue Commissioners to recover all tax outstanding on foot of the pandemic unemployment payment support in one year and not four years as previously advised; and if he will make a statement on the matter. [9477/21]

Seán Canney (Galway East, Independent)
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186. To ask the Minister for Finance if he will review the method by which the Revenue Commissioners are treating persons who received the pandemic unemployment payment given that some taxpayers are facing large additional tax bills; and if he will make a statement on the matter. [9756/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 165 and 186 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 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 Revenue Commissioners are independent in the exercise of their functions. However, they advise me as follows:

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 due to the urgent requirement to get payments to people as quickly as possible, 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 not to be the case due to the continued prevalence of COVID-19. Any tax liabilities on PUP payments received in 2020 will be collected, interest free, by reducing the employees’ tax credits over 4 years, starting in January 2022. There is no change in that position which was confirmed by Revenue last September.

The continuation of the PUP into 2021 has re-established the practice of operating PAYE in the normal (real-time) manner for such payments. However, people receiving PUP payments in 2021 will only pay tax when they return to work. Revenue has published information on the taxation of the PUP at linkwww.revenue.ie/en/life-events-and-personal-circumstances/pup-tax-liability/index.aspx, which may be of interest to the Deputy.

When a PUP recipient returns to work, he or she should immediately cease the PUP claim with DSP. In turn, DSP will notify Revenue that the payment has ceased, and Revenue will then adjust the employee’s tax credits accordingly. For a person who is on PUP at the start of the year, the weekly amount is annualised on the Tax Credit Certificate (TCC), with knock on impacts on the tax credits and standard rate cut off point, i.e. as if the person will be on the PUP for the full year. When the person comes off PUP, the TCC is then amended to reflect the actual number of weeks that the person received the (PUP) payments.

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. Any delay in issuing the revised instruction to the employer will delay the employee receiving his or her full tax credit entitlements so prompt notification by the employee to the DSP is very important.

Specifically, regarding the taxation of PUP, the following important 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.

For example, if a single person is in receipt of the PUP for the months of January and February 2021 before then returning to work (i.e. 8 payments of PUP at €350 per week, totalling €2,800) the outstanding tax due on the payments received at that point is approximately €52. However, this amount will be offset fully or partly by the reduction in the total USC liability for the year because PUP payments are not liable to USC.

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 appropriate tax is collected. However, a jointly assessed couple can earn gross income (incl. PUP) of €635 per week before they have a tax liability.

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 (real-time) deduction arrangements now applying to the PUP for 2021 insures against this, as tax credits are set aside for offset against any tax due (on the PUP), rather than having employees face a higher additional liability at year end. It 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).