Revenue has always stated that the Covid Wage Subsidy will be subject to USC and Income Tax eventually – but not while it is being paid out.
Employees will be liable for any tax on the subsidy amount by way of review at the end of the tax year.
(There will also be Tax due on the Covid Unemployment Payment )
When an end of year tax review takes place, it could be the case that an employee’s unused tax credits will cover any tax liability that may arise. (More likely in lower-paid jobs / part-time workers or where people don’t return to full employment.)
Where tax is owed – Revenue has stated that employees will be given the opportunity to fully or partially pay any income tax and USC liability through the Payments/Repayments facility in myAccount. Otherwise, Revenue will collect the liability, interest-free, by reducing the employee’s tax credits over 4 years starting in January 2022.”
Will You Have to Repay Income Tax and USC ?
In general – for many people it will mean a tax underpayment of between 20% and 40% of the total wage subsidy received.
Plus USC underpayments of about 4.5% of the total subsidy received.
We have calculated that people on a wage of around €25k to €40k will owe 20% of the subsidy.
People on wages higher than €40k will owe more – gradually rising to 40% as wages approach €50k. See table below for examples.
Important – Tax Rebates
Some people on the subsidy scheme may have been paid rebates of income tax and USC through their wages whilst on the wage subsidy . These rebates will also be owed to Revenue on top if full employment resumes as shown in the examples.
Taxation of Wage Subsidy Example
Single Employee earning €700 a week gross (€36400 annually).
Cut off Point €35300 ; Tax Credit €3300
In the first 3 months of the year they earn their full salary.
In March, April and May they get €350 a week (untaxed) on the wage subsidy scheme – a total of €4550 .
In June they go back to work on the same full salary of €700 a week for the remaining 6 months of the year.
Total income in 2020 = €31,850
For a single worker the normal deductions due in 2020 on an annual income of €31,850 would be:-
- Income Tax €3070
- USC would be €756.
- PRSI €1274
Actual Deductions Made.
Because the Covid payment was non taxable – the total taxable income was reduced to €27300. Deductions made on that would have been :
- Income Tax €2160
- USC €551
- PRSI €1091
This means there will be tax underpayments.
Income Tax underpayment of €910
USC underpayment of €205
PRSI – no underpayment because the subsidy is not liable for PRSI
More Examples in the Table Below
(All examples based on single person getting €350 a week subsidy for 13 weeks and going back on full employment after 13 weeks).
Of course – if you were on the subsidy scheme for longer your total income for 2020 will probably be lower and your tax liability will also be lower.
| Annual Gross Wage in 2020 | €25000 | €32000 | €36400 | €42000 | €45000 | €50000 |
|---|---|---|---|---|---|---|
| Nine Months Wage Plus Subsidy | €23300 | €28550 | €31850 | €36050 | €38300 | €42050 |
| Income Tax due on above | €1360 | €2410 | €3070 | €4060 | €4960 | €6460 |
| USC due on above | €371 | €608 | €757 | €945 | €1046 | €1215 |
| Taxable Pay (without subsidy) in 2020 | €18750 | €24000 | €27300 | €31500 | €33750 | €37500 |
| Actual Tax Paid 2020 | €450 | €1500 | €2160 | €3000 | €3450 | €4640 |
| Actual USC paid 2020 | €195 | €403 | €551 | €740 | €842 | €1010 |
| Tax Underpaid | €910 | €910 | €910 | €1060 | €1510 | €1820 |
| USC Underpaid | €176 | €205 | €205 | €205 | €205 | €205 |
Revenue have stated that employees will be given the opportunity to fully or partially pay any income tax and USC liability through the Payments/Repayments facility in myAccount. Otherwise, Revenue will collect the liability, interest-free, by reducing the employee’s tax credits over 4 years starting in January 2022.”
Income Tax rebates may have been given to the employees by Revenue during the wage subsidy period. These rebates will also need to be paid back in the situations shown above.
All calculations are based on the information available to us at the time. This is a guide to what to expect. Revenue will decide the exact method of calculation – so do not rely on these figures.
More information on the Tax due on the Covid Unemployment Payment