Big tax bills ahead if you've received Covid payments
Christmas could see unknowing workers hit with a tax bill of up to €2,828.59, in addition to any drop in income they may have suffered during the lockdown.
And January could see taxpayers, employers and Revenue scrambling to balance the tax affairs of the over 1 million recipients of the schemes.
This is according to Taxback.com, who say that the end of year tax bill, as a result of being on the Temporary Wage Subsidy Scheme (TWSS) or in receipt of COVID Pandemic Unemployment Payment (PUP), is likely to come as a “major shock” to thousands of people throughout the country at the end of the year.
The latest Taxback.com Taxpayer Sentiment Survey revealed that more than half (57%) of respondents receiving either payment are not aware that a future tax liability would be building.
Since its introduction in March, over 551,800 employees have been paid by the TWSS, while 517,600 have received the PUP.
Taxback.com say that while there can be no doubt that the implementation of these supports was absolutely necessary and has helped thousands of employers and employees alike, the processing of payments fell short in its execution, leaving those in receipt significantly out of pocket by the end of the year.
Taxback.com released their own analysis of the impact of the TWSS and of the COVID PUP on the salaries of 12 different sample scenarios.
Employees earning above €20,000 with no income top-up will see their net incomes drop during the 23 weeks by €1,000 up to €22,000 or more.
Employees with an income top-up from their employers won’t suffer a net income drop in 2020 unless their income is over €44,000 but will face a tax bill of between €300 and €2,829 at year end depending on their income.
Commenting on the findings, Marian Ryan, Consumer Tax Manager with Taxback.com, said: "When assessing the impact, we were mindful of the immediacy with which the Government had to roll out the scheme, so anomalies were to be expected.
"The issue, however, is that thousands of employees appear to be completely unaware of what is coming down the tracks.
"The scheme was rolled out in good faith to see employers through the instability of COVID-19 – and to ensure they emerge from the downturn – but a biproduct of its expediency could see less money in the pockets of employees in 2021 and possibly 2022 depending on how the tax burden is spread."
Taxback.com asked 2,500 taxpayers from their database:
Are you aware that payments made through the Pandemic Unemployment Payment (PUP) and Temporary Wage Subsidy Scheme (TWSS) are taxable, so if you are in receipt of these payments you could have a tax bill at the end of the year?
Of those who were in receipt of either payment, 57% said they were not aware and Taxback.com contend that even of the 43% who said they were aware, feedback from both their employee and employer clients suggests that there is big possibility that they will not know what they will, or can, do about it.
Taxback.com report that employers too have been calling them in recent weeks, concerned that, as employees are coming to them querying the impact of such payments on their take home pay, the employers themselves are simply not sure what to tell them, such is the ambiguous nature of the information on the topic.
Taxback.com say the impact of the payments on workers varies considerably.
Ms. Ryan explained: “Those on low incomes that are below the income tax threshold should be largely unimpacted on either scheme.
"Also, those whose employer didn’t top-up the TWSS payment will have suffered from lower income during the pandemic, but should have a lower tax liability at the end of the year or may be due a rebate if their income is greater than about €38,000.
"However, any tax rebate will pale in size compared to the loss of income during 2020.
"Interestingly, there’s another idiosyncrasy when it comes to the salaries of a certain cohort of workers – because of the cap on payments, a worker on a salary €35,000 will have a larger underpayment of tax at the end of the year, than someone who earns €38,000.
"This is because the employer of a worker on €35,000 will get a TWSS of €390.62, whereas the employer of a €38,000 salaried worker is only entitled to a payment of €350.
"Of course, certain cohorts or workers will be affected more than others. It would appear that what has been previously termed as “the squeezed middle” with incomes between €35,000 and €70,000 are likely to suffer a major financial blow”.