Here’s what has changed about tax due on PUP

CLOSE to half a million people who are receiving the Pandemic Unemployment Payment (PUP) this year because their jobs have been temporarily shut down are being hit with a nasty tax surprise. Those getting the payment this year will have to pay tax on it this year. This is in contrast to last year, when people were given more options to pay the tax.

Q: What are the options for paying the tax due on PUP received last year?

A: Those who face a tax bill for last year’s PUP can pay it in one lump sum if they have the funds. Alternatively, they can offset the tax bill by claiming tax credits such as those on medical expenses or flat-rate expenses based on their occupation.

Some employers may pay it, in which case there will not be any benefit-in-kind tax imposed on the employee.

The other option is to agree to an adjustment with Revenue of the tax credits for four years from January 2022 to gradually pay off the bill. Revenue said this could be done on an interest-free basis.

Q: What has changed this year?

A: This year the PUP is to be treated like any other social welfare payment, such as Jobseeker’s Benefit. This means tax due on PUP earned this year will have to be paid this year. Any tax due will be collected by reducing the person’s tax credits and rate band, according to Chartered Accountants Ireland.

Norah Collender of the accountancy body said: “Revenue ‘annualises’ the weekly amount of PUP. The notional annualised amount is calculated by multiplying the weekly amount by 52 and the annual tax credits and rate band are reduced by this amount.”

For someone getting the maximum PUP of €350 per week, the total for a full year will work out at €18,200. Ms Collender said this would lead to a reduction of €70 a week in tax credits for someone on the standard income tax rate of 20pc.

Couples taxed under joint assessment will see this hit the working partner if the person in receipt of the PUP has insufficient tax credits.

This means the spouse/civil partner’s tax credits will instead be reduced to ensure that the tax is collected.

Q: Why is Revenue doing this?

A: The fact that the maximum PUP is so high compared with other welfare payments means Revenue is concerned that too big a tax liability would build up if people were again given the option to spread out repayments over four years, it is understood.

The arrangements for tax due on PUP last year reflected the fact that it was a new payment and there was confusion about the tax situation.

Q: Is there no tax-free element to the PUP?

A: PUP is liable for income tax, but not USC or PRSI.

For those on Jobseeker’s Benefit, the first €13 per week of the payment is ignored for tax purposes, as is any child dependant payment, but this is not the case with PUP, Ms Collender said.