About 53% of employees who received some type of Covid-19 wage support now have a tax liability
There's a tax sting in the tail for those who received Covid-19 employee wage subsidy payments. The good news for most is that
Revenue updated employees’ online profiles last week, with details of incomes on record from employers and from the Department of Social Welfare.
Since January 1, 2019, the payroll system in Ireland has gone to real-time reporting, meaning that Revenue no longer needs to wait until an end-of-year P35 return is filed by employers, to gather up employee pay details.
As such, for the vast majority of employees, the pay received by them during 2020 will already be collated into Revenue’s records, and now summarised on the employee’s online profile, which is accessible to you through MyAccount, or through ROS, if an employee has a ROS digital cert.
This means that employees have, for the first time this year, the opportunity to see how much tax they owe for 2020.
More than 600,000 employees benefited from subsidy payments last year in the form of employee wage subsidy payments, or tax wage subsidy payments, both of which were administered by employers.
Although the payments were routed through employers, the money was not deemed income at the time, was not subjected to PAYE (income tax) or USC at the time, and for many employees, a tax bill now arises as a result of receiving that income. Revenue figures released last week suggest about 53% of employees who received some type of wage support now have a liability.
Within that cohort, about 30% will have a liability in excess of €1,000.
For the self-employed who file their income tax returns via a Form 11 or for those who are jointly assessed with a self-employed person, it is not possible to generate the estimate of liability via the MyAccount profile.
Instead, the liability can only be established on preparing a more complicated Form 11.
For all other employees, who are not usually assessed via a Form 11, it will be possible to generate an estimate of the liability owing for 2020 by logging through their MyAccount profile.
Virtually all employees now have a MyAccount profile, as employees need access to this profile to register any new employments, or private pension income.
Last Friday, Revenue made available the summary of incomes which were reported to them from employers, pension providers, and the Department of Social Protection.
To access the records, login to your MyAccount profile, using your PPS number, date of birth and password, or to ROS using your digital cert and password.
Once logged in, select “Review Your Tax 2017-2020”. Year 2020 will be the default page displayed, and an option will be available to ‘Request’ a statement of liability. This process should generate a preliminary figure of what Revenue estimate your refund or liability position is for 2020.
However, in order to finalise your position for 2020, you will need to proceed to complete an employee variant online tax return, by selecting ‘Complete your income tax return’.
Once it is selected, you will need to update your records with details of any other non-PAYE income (rental income, dividends, interest, foreign income or other income); claim additional credits, if applicable, such as qualifying health expenses; and proceed to review and complete the return. You can leave the process midways, and return to complete your tax return at a later point.
Importantly, you will not have visibility of the income tax or USC/PRSI position for 2020 at the point of declaration of your tax return as being complete, rather a balancing statement will issue to your MyAccount inbox, usually within a few days of completing the income tax return. As such, a PAYE worker is effectively filing their tax return “blind” as to what their tax liability or refund position is, albeit with the benefit of the preliminary estimate from Revenue, to be adjusted by the additional income streams or credits to be claimed.
Of huge importance is the recent confirmation that employers can operate payments to employees, to assist them in paying their liability resulting from receiving subsidy payment without benefit-in-kind.
But such payments must be agreed and paid before the end of June, 2021.
Farmers and their spouses who received subsidy payments through their employments should look to prepare their income tax returns early this year, especially so where there may be the prospect of the employer making a top-up payment to them in respect of 2020.
Revenue have confirmed that they are very aware that underpayments could cause financial difficulties for some people, and wish to reassure these taxpayers that collection will not start until January 2022, one year from now, via a reduction in tax credits.
Of course, some employees will wish to settle their liabilities earlier. It is not clear whether Revenue will offer any such leniency to employees who are assessed either themselves or jointly with their spouse’s income tax.
