Tuesday, 6 July 2021
Department of Finance
The Pandemic Unemployment Payment (PUP) is a social welfare payment for workers (employees and self-employed) who are out of work due to the COVID-19 pandemic. The taxation arrangements for the PUP, which were legislated for in Finance Act 2020, reflect the standard approach to taxing 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 such as Jobseekers’ Benefit and Illness Benefit is by reducing the recipient’s tax credits and rate bands.
I am advised by Revenue as follows:
The PUP was not taxed in the normal ‘real-time’ manner in 2020, meaning the collection of any tax due was deferred until year end. This approach was adopted to ensure payments reached recipients as quickly as possible given the suddenness of the pandemic and on the 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. Where tax liabilities still exist for 2020 after all additional tax credits such as health expenses have been applied, the balance can be collected interest free over four years from 1 January 2022 by reducing the employee’s tax credits.
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, for most people receiving PUP payments in 2021, they will only pay tax when they return to work. When a PUP recipient returns to work, he or she should immediately cease the (PUP) claim with DSP. Once Revenue receives notification of the change from DSP, it adjusts the employee’s tax credits accordingly on a ‘Week 1’ basis and issues a revised payroll notification (RPN) to the employer. Revenue also issues a revised tax credit certificate to the employee.
Any delay in advising DSP of the return to work delays notification of the change to Revenue, which in turn delays employees receiving their full tax credit entitlements. For example, if there is a time delay between Revenue receiving the (PUP) claim closure notification from DSP and the employee’s first payment from the employer, then s/he will not benefit from full tax credit and rate band entitlements for that pay period. It is also important to note that employees may receive additional PUP payments after returning to work as the scheme is paid in arrears, which can also impact on the initial tax adjustment.
Finally, regarding the impact of PUP payments on taxation, it is worth noting that approximately 50% of recipients do not receive the highest rate of €350 per week and a single person’s weekly tax credits will fully cover any tax due on the lower weekly payment rates of €203, €250 and €300. These recipients will in fact have built up credits of between €3.46 and €22.86 per week for the period out of work, which will be available for offset against any liabilities arising from the PUP once they return to work. For a single person in receipt of the €350 PUP rate, their weekly tax credits will cover 90% of the tax payable, leaving tax due of approximately €6.50 per week.