Workers may face tax bill on emergency State wage subsidy

Weekly payments of up to €410 could lead to income tax and USC bill liability at year end

Wage subsidy: to qualify, companies must have seen their business significantly disrupted by the Covid-19 crisis.

Wage subsidy: to qualify, companies must have seen their business significantly disrupted by the Covid-19 crisis.

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Workers may face a tax bill on emergency payments of up to €410 a week from their employer under the Government’s wage subsidy scheme.

The payment, which is designed to help employers hold on to staff even as coronavirus sharply reduces their business, is not taxed through the PAYE system. However, workers, whose income is above the income tax-free threshold or above the tax band at which income tax has been deducted at source by year end will have to file a tax return and pay tax on the money.

Although the money will be paid “apparently tax-free” to the worker, says benefits consultant Tony Gilhawley of Technical Guidance, the weekly subsidy payment is in fact still taxable income outside the PAYE system.

‘Sting in tail’

He says the payment could “be a sting in the tail” for some people already struggling on reduced earnings. “It will all depend on the employee’s income for 2020 and their allowances etc, as to whether they end up with a tax liability on the subsidy payment or not at the end of 2020. Some will, some won’t.”

Those with a tax liability will also have to pay universal social charge (USC) on the payments which Mr Gilhawley described as an anomaly. Other State benefits are not subject to USC.

The emergency payments will not be liable to PRSI at any stage, and employers who can top up the State payment for their workers will pay just 0.5 per cent employer PRSI on that additional money rather than the standard 10.5 per cent rate.

The details are contained in a guidance note from Revenue, outlining how the temporary wage subsidy scheme – which came into force last Thursday under the Emergency Measures in the Public Interest (Covid-19) Bill 2020 – will operate.

The note states: “Income tax, USC, LPT [local property tax], if applicable, and PRSI are not deducted from the temporary wage subsidy. However, the subsidy will be liable to income tax and USC on review at the end of the year.”

That means that workers will have to assess their own income and tax liability at year end, and pay any additional tax and USC due, depending on their final income for 2020.

12 weeks

Under the scheme, the Government will pay a flat €410 a week of an employee’s salary this month. From mid-April, the Revenue says that the sum payable will be fine-tuned so that the State pays no more than 70 per cent of salaries up to a maximum weekly payment of €410.

The subsidy, which is expected to last for 12 weeks, equals the after-tax income of a worker earning about €38,000 per annum. Employers cannot apply to use the scheme for any workers earning above €76,000 a year.

To qualify, companies must have seen their business significantly disrupted by the Covid crisis and be able to show Revenue that their turnover or customer orders will be down at least 25 per cent between March 14th and June 30th,and that they are unable to pay their workers in full despite their best efforts.

The purpose of the State subsidy is to allow companies keep their staff on the payroll for when the crisis passes. It does not matter whether those staff are currently not working or where they are working, but on reduced hours and/or pay. But only employees who were on a company’s payroll at the end of February are eligible.

Where reduced pay – not including the wage subsidy – means workers are entitled to a refund of income tax or USC already paid so far this year, the money can be repaid to staff by the employer, Revenue says, and the companies will be refunded by the tax authority.

The scheme is expected to cost the State an estimated €3.7 billion over the initial 12 weeks to the end of June.