Back in May, Independent TD Marian Harkin warned that people receiving the Covid-19 unemployment payment could be in for a “terrible shock” at the end of the year as many do not realise it is taxable. Numerous third-level students have been in receipt of this payment – in a survey carried out by The College Tribune in April, 58% of UCD students surveyed said they had been working part-time or full-time jobs before the nationwide lockdown.
We spoke to Marian Ryan, the Business Development Executive of taxback.com, to find out if students who were receiving the Pandemic Unemployment Payment (PUP) will face tax liabilities in the near future.
Is the Covid-19 payment taxable and how will such a tax be deducted?
The Pandemic Unemployment Payment is liable to income tax and USC; however, this is not deducted at source. When the end of the year review takes place, it may be the case that your unused tax credits will cover any tax bill that may arise as a result of the payments received.
Where this is not the case, and should an income tax liability arise, it is normal Revenue practice to collect any tax owing in manageable amounts by reducing an individual’s tax credits for a future year(s) in order to minimise any hardship.
What this means is that if you have any underpayment in PAYE or USC at the end of 2020, the Revenue will reduce your tax credits in 2021 and 2022 [to resolve this] and you will pay a little bit more tax each week.
The Revenue will not be expecting PAYE workers to pay back the underpayments in a lump sum payment.
What is the threshold for earning which would lead to someone being taxed on the Covid-19 payment?
A single person on standard tax credits can earn up to €16,500 before they will start paying any PAYE tax. So if your total earnings in 2020 from employment and from the PUP is below €16,500 you will not owe any PAYE tax at the end of the year.
The total PUP a student will receive could vary between €6,580 and €7,756 depending on their weekly income before the pandemic. If a student received the full €7,756 they could earn another €8,744 during 2020 before they would have to pay any PAYE. If a student received the lower amount of €6,580 they could earn another €9,920 during 2020 before they would have to pay any PAYE.
You may however have to pay some USC on your PUP received. The rates of USC you would have to pay would again be based on your total income for the year: If your total income for the year was under €12,012.01 you would have to pay USC at a rate of 0.5%.
Let’s assume you received the PUP for 23 weeks from March-August, and in addition to this you had employment income of €5,000 during 2020. You would have received a total payment of €6,580 (10 Weeks @ €350p/w and 10 weeks @ €203 p/w)
Your total income for 2020 would have been €11,580.
In this case you would be below the threshold for PAYE and you would have to pay USC at a rate of 0.5% on your PUP which would total just €3.43.
If a student or graduate decides to emigrate before the end of the year, can they still be taxed for the payment while working in another economy?
If someone moves to another country, they would still be deemed a tax resident here in Ireland and as a result their PUP would be still be taxable [by the Revenue].
However, if their intention is to be non-resident here during 2021, [Taxback.com] can claim what is called Split Year relief for them to avail of their full 2020 tax credits, even though they might not be here for all of 2020.
Is there a chance that students will end up losing money after receiving the PUP because of tax?
Anyone who has received the PUP will be taxed on a week 1 basis for the rest of 2020 which means they are only taxed each week on their earnings that week. They will not pay any more tax during 2020 than they normally would.
This information provided to The College Tribune by Ms Ryan will likely come as a relief to many third-level students. Last week, The Irish Times published a headline stating “Over 1m workers may face tax bills of up to €2,800 at end of the year.” Ms Ryan also told The Irish Times that workers “with incomes between €35,000 and €70,000 are likely to suffer a major financial blow.”
Students can visit taxback.com for more information on taxes and refunds in Ireland and other countries, and to avail of their tax refund services.
Bláthnaid Corless – Assistant News Editor