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Pandemic Unemployment Payment (PUP) and Taxation

December 23, 2020

Pandemic Unemployment Payment (PUP) & Taxation

As many of you are aware, the Pandemic Unemployment Payment is a taxable source of income.

The tax due on this income is not collected at the time the payment is made. Any tax liability will be generated by way of an end of year review.

This is leaving a lot of uncertainty in people’s minds as to how much tax they might owe to Revenue.

 

Fear not! MyTaxRebate are here to provide you with the clarity you need.

 

Will I definitely owe tax to Revenue?

There are 3 main situations that can arise if you have been receiving the Pandemic Unemployment Payment:

  • You will have a tax liability,
  • You will be due a tax refund, or
  • Your taxes will be correct

If a tax liability does arise, you can:

  1. Claim additional tax credits that could reduce the tax liability and even generate a tax refund,
  2. Offset the liability against tax refunds in future years (Revenue tend not to collect liabilities less than €100 – these are automatically carried forward and offset against any future tax refunds), or
  3. Reduce your tax credits in future years to pay any tax liability (it is Revenue practice that the maximum they will reduce your tax credits by is €1,000 a year. This is to avoid too much financial hardship on you. However, if an amount less than this still causes too much hardship, they are often willing to collect any liability over longer periods of time).

Do I have to pay USC on the Pandemic Unemployment Payment?

Unlike all other social welfare payments, the Pandemic Unemployment Payment is liable to the Universal Social Charge (USC). The USC owed on the PUP will be added to and treated in the same way as the tax liability.

 

Possible Scenarios

1. Earning less than €317 most weeks:

Generally, a single person has €3,300 worth of tax credits each year. This is enough to ensure they can earn €317 a week tax free. Where someone earns less than €317 a week, they have unused tax credits which will be used against any tax that would be due on the Pandemic Unemployment Payment. For most students and part-time workers this will mean you will not be due to pay any tax on the Pandemic Unemployment Payment at the end of the year.

 

2. A person earning between €317 and €678 most weeks:

Typically, anyone earning between €317 and €678 a week are paying tax at the standard 20% rate. They also do not have any unused tax credits to carry forward against a liability that may arise from the Pandemic Unemployment Payment.

For these individuals, a tax liability of 20% on the Pandemic Unemployment Payments above €317 a week will generally arise.

 

3. A person earning more than €678 most weeks:

Where a person had been earning more than €678 a week, they would generally be paying 40% tax on a portion of their income. As they are now in receipt of income less than the higher tax rate threshold, some of the income, which was previously taxed at the higher rate, would now be liable at the lower 20% rate.

This will lead to a tax refund being due in almost every case.

As can be seen from the above scenarios, whether your tax is correct, underpaid or overpaid depends on:

1. Your level of income before receiving the Pandemic Unemployment Payment

2. The length you were receiving the Pandemic Unemployment Payment for

3. The rate at which you received the Pandemic Unemployment Payment

4. Your level of income after receiving the Pandemic Unemployment Payment

5. Your personal circumstances, which could increase or decrease your tax credits

What can I do to eliminate my tax liability?

Revenue have indicated that, beginning in 2021, they will be writing to each individual who has received a Pandemic Unemployment Payment and now owes tax.

The letter should include your total tax liability and how Revenue intend to collect it. The most common method of collection will be to reduce your tax credits over a number of years, beginning in 2022.

At MyTaxRebate, we want to help you to eliminate this liability.

We only charge a fee (the lowest in Ireland) when you are issued a refund. Where we reduce your tax liability, and no refund is issued, there is no fee for our service.

 

For example

Revenue issue you with a tax bill of €2,000. You register as a client with MyTaxRebate, we review your taxes, find that you are entitled to additional tax credits, and manage to reduce your tax bill to €300. You will not be charged for our services, despite saving €1,700 in tax!

 

What form should I complete to eliminate my tax liability?

We recommend completing our Full Review Form. This form will provide us with the details necessary to claim any additional tax credits you might be due for the last 4 years.

The additional tax credits are crucial in eliminating any tax bill Revenue have sent to you.

Alternatively, if you know what additional tax credits you are entitled to, you can fill out our simple 50-second Quick Review Form, and contact us upon completion informing us of the tax credit(s) you are looking to claim.

Even if you don’t know what tax credits you are entitled to, our Quick Review Form will give us the ability to review your taxes for the last 4 years. You might be due tax back from a few years ago which can reduce your tax bill.