Revenue this week issued an important clarification which is of interest to employees who received payments through their employer under the Temporary Wage Subsidy Scheme (TWSS) in 2020.
In the period from March to August last year, employers who experienced difficulties as a result of Covid-19 could apply to get TWSS assistance in meeting their employee costs.
The payment was actually directed at the employee, albeit passed through the employer as a conduit.
The rationale was that the State wanted to support the employees directly through their employers, rather than have employees overwhelming social welfare offices.
By keeping the connection between employer and employee, the expectation was that employers would be less likely to make permanent decisions around redundancy, and that restarting the economy would be easier, where employees resumed in their existing roles when the economy re-opened.
The Temporary Wage Subsidy Scheme was not subject to tax at the point of payment, on the basis that it was not remuneration or salary paid by the employer.
Instead, it was a subsidy paid out by employers on behalf of the State.
The payment was not subject to deduction of PAYE, PRSI and USC by the employer, but it is treated as forming part of the employee’s total income for the year 2020 and, as such, many employees now have an income tax liability as a result of the payment.
Earlier this year, Revenue offered a concession such that where an employer covered the employee’s liability arising as a result of the TWSS payments, the payment of the tax due by the employer would not be treated as a benefit-in-kind.
Initially, this facility was limited to payments made by employers on behalf of their employees up to the end of June 2021.
In January, Revenue made a preliminary end of year statement for 2020 available in MyAccount to employees which allowed them to see if there is an underpayment of income tax or USC arising due to the TWSS payments you received.
Unfortunately, the end of year statement only applied to employees who were either not income tax registered in their own right, or employees who were not assessed to tax jointly with a spouse or civil partner who is income tax registered.
Self-employed persons, persons with rental income, and company directors who own more than 15% of the share capital, are generally required to register for income tax.
Therefore, many farmers, and their spouses who may have received TWSS payments in respect of off-farm employment were not able to access the end of year statements via the online MyAccount portal, and the fear was that such employees, who were also income tax registered, could not avail of employer payments to settle their income tax liabilities on a tax-free basis.
Initially, this facility was limited to payments made by employers on behalf of their employees up to the end of June. It has been extended to run until the end of September 2021.
The welcome clarification that issued this week is that the benefit-in-kind (BIK) concession also applies where your employer pays your TWSS related tax and USC liabilities for self-assessed taxpayers or, in joint-assessed cases, if your spouse is self-assessed.
The BIK concession also apples where your employer pays the TWSS related tax and USC liabilities where you are a proprietary director(s) in the company (provided that the employer pays the TWSS related liabilities of all employees in the company).
Revenue have clarified that they will not be providing calculations for each individual employee arising as a result of the TWSS payment, as the amount payable is unique to each employee.
More clarifications may arise in the coming weeks on a basis which will be acceptable.
The news is hugely welcome for those employees who would otherwise be disadvantaged by the fact they themselves or their spouses/civil partners are self-employed, proprietary directors, or otherwise income tax registered.
For people who pay their tax through the PAYE system, any balance of tax payable arising as a result of the TWSS not settled by their employer will be collected by reducing the employee’s tax credits over four years, starting in January 2022.
For those income tax registered, the tax due must be paid this year.
- Chartered tax adviser Kieran Coughlan, Belgooly, Co Cork.
- (086) 8678296