*Workers drawing down the special pandemic unemployment payment or the temporary wage subsidy face tax bills of up to €2,800 at the end of the year, according to calculations from personal finance advisers Taxback. com.
That is on top of the loss in income running into thousands of euro for many workers as the weekly payment is below their normal take -home pay.
And most are not aware of it, the company says. It warns that January could see more than one million people who are in receipt either of the unemployment payment or the temporary wage subsidy “scrambling to balance their tax affairs”.
Revenue has said that, for some, any payment due might be offset against reliefs unclaimed. For others, payment of back taxes owed will be spread out over one or two years.
However, a survey by Taxback.com found that 57 per cent of its clients who are in receipt of either the unemployment payment or the temporary wage subsidy payment are not aware that a future tax liability would be building up. Getting a tax bill at year end would, the company said, be a “major shock”.
And as Taxback.com clients, the group surveyed would generally be more aware of their tax position than many PAYE workers.
Loss of income
Taxback.com notes that loss of income would range from €150 over the full year for a retail worker earning €23,000 gross to €16,500 for a business executive on a salary of €115,000.
They will also face end-year tax bills on the unemployment payment ranging from €112 for the retail worker to €2,492 for the executive.
Even a low-paid worker who will actually receive more money into their pocket as a result of the pandemic unemployment payment than they would normally do from their weekly pay cheque will still be at a marginal loss because of tax.
The Taxback.com data shows that someone earning €21,008 would be €149 better off under the unemployment payment over the year. But they would face a bill of €157 at year end, leaving them €8 worse off.
The pandemic unemployment payment is paid at €350 a week flat rate to those who have lost their jobs if their weekly income was €200 or above. For those who had been earning less than that threshold, the payment is €203 a week.
Wage subsidy
People on the temporary wage subsidy, which is paid through employers to help keep staff in employment, will also be affected by both the tax bills and loss of income – even where employers top up the Government payment.
While those earning above the industrial average wage will, Taxback.com says, benefit from the tax rebate of around €1,300 if they receive no employer top-up – assuming they return to full pay after the scheme ends in August – they will still be out of pocket.
The amounts range from around €4,800 for workers normally earning €41,000 a year to almost €20,000 for those on an annual salary of €115,000.
For those getting top ups from their employer, the loss over the year will be slightly less – from around €320 if they earn €21,000 per annum to €12,600 at a €115,000 salary level.
The data put together by Taxback.com assumes that, where employers are topping up pay, they are doing so to the maximum wage subsidy level available.
*In fact, employers can top salaries up to 100 per cent of a workers’ take-home pay, if they choose to do so. However, any top-up is subject to tax and universal social charge at source, though not PRSI, so workers are still out of pocket even if companies pay them the maximum allowed.
Commenting on the findings, Marian Ryan, consumer tax manager with Taxback.com, said. "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 by-product 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.
“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.”
*This article was edited on Friday, June 26th, 2020
