Catherine Murphy (Kildare North, Social Democrats)
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242. To ask the Minister for Finance the way in which in a person’s tax liability in respect of PUP is calculated if they are married and self-employed; if he will clarify the person liable to cover the liability (details supplied). [57871/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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Pandemic Unemployment Payments (PUP) are classified in legislation as income supports and as such are subject to income tax but are exempt from the Universal Social Charge (USC) and Pay Related Social Insurance (PRSI). This is the case whether the recipient of the PUP was either a former PAYE worker or a person who was previously self-employed. 

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 that payments reached recipients as quickly as possible, given the suddenness of the pandemic and in 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.

From 2021, the mechanism to tax the PUP, in common with other Department of Social Protection (DSP) payments, including Jobseeker's’ Benefit and Illness Benefit, was to reduce the recipient’s tax credits and rate bands, ensuring as far as possible, that the right amount of tax is collected at the right time.

The taxation of the PUP in real time in 2021 meant that, for PAYE employees, the tax credits of the person receiving the payment were reduced to take account of the PUP.  However, there are differences in how the taxation of DSP payments, including the PUP, is handled for self-assessed taxpayers. In particular, for self-assessed taxpayers where neither they nor their spouse have a PAYE income, the tax credits of the person receiving the DSP payment would not be adjusted. This reflects the position that, for self-assessed taxpayers who do not have any PAYE income, their tax credits are offset against the tax due when their return is submitted after the end of the tax year. Tax due on any taxable DSP payments they may have received is calculated when they submit their income tax return for the year.

Where the person, or their spouse has an active PAYE employment on record, their tax credits will generally be adjusted to reflect the impact of the tax due on the DSP payment.

In the case of a PAYE worker, jointly assessed with a self-assessed spouse, the tax credits allocated to the PAYE spouse’s employment are adjusted to collect the tax on the DSP income. While in most cases the credits of the PAYE spouse will be adjusted, there may be some scenarios where the PAYE spouse’s credits may not be affected. This approach is a longstanding one that operates in all cases involving jointly assessed couples and civil partnerships, where one spouse/civil partner is in self-employment and the other is taxed through the PAYE system.