Tax and the Pandemic Unemployment Payment: Your questions answered
The payment is taxed but you will not face a lump sum of a tax bill
If there is any tax owing at the end of the year, Revenue will collect this by adjusting your tax credits.
Who is entitled to the Pandemic Unemployment Payment?
The payment, which is a flat rate lump sum of €350 a week, is paid to anyone who has lost their job as a result of the coronavirus shutdown. It applies both to employees and the self-employed. You need to be aged between 18 and 66 and resident in the State.
Unlike other welfare payments, you do not need a public services card to apply – although using one will give you online access to the application process which will deliver payments more quickly.
According to the most recent figures, 579,400 people are in receipt of the payment, though 33,400 of them have now returned to work and will not receive the payment from next week.
I’ve heard this might be taxable. Is that the case and, if so, why?
It is taxable – as in subject to income tax. This has come as a revelation to the many people who now find themselves claiming social welfare for the first time in their working lives.
A number of welfare payments are subject to income tax these days. They include jobseeker’s benefit, which is the standard unemployment payment for those who are out of work but have a history of PRSI payments – although any increase in jobseeker’s for qualifying children is not taxed.
Other taxable welfare payments include maternity benefit. For those of a certain age, the State pension is also taxable if a person has other sources of income.
However, as with other social welfare payments, pandemic unemployment benefit is not liable to either the universal social charge or PRSI (pay-related social insurance).
But it’s not taxed at source, like my PAYE income when I was working?
No, it’s not. The payment comes to you gross from the Department of Employment Affairs and Social Protection. However, the department does pass the details of each payment on to the Revenue Commissioners.
So when is tax collected?
At the end of the year, Revenue will send you a preliminary end-of-year statement, outlining what it understands your income to have been during the year – from the unemployment payment and also any work during the year. It will indicate how much tax is owing.
Revenue has said this will be collected over the following year (or years) by adjusting your tax credits, so you will not be expected to find a lump sum to pay the tax bill but you will be paying more tax on an ongoing basis until the bill is paid.
Do I need to make a tax return to Revenue?
This is the one that scares so many people. You will not have to make a tax return unless you’re also claiming other credits or reliefs of which Revenue is not aware. For most people, this will involve claiming for health expenses incurred over the year, and you have to file a return now to do that anyway.
If there is no PRSI, will it affect my chance of getting a State pension?
No. Although you do not actually pay PRSI on the €350 a week, your PRSI record is credited with a stamp for each week that you are on the pandemic unemployment payment.