Subsidy payments made by Revenue to employers under the original Temporary Wage Subsidy Scheme (“TWSS”) and which are paid to employees are treated as part of the employees’ salary and wages for tax purposes.
This amount paid to employees via payroll was not subject to tax under the PAYE system during the currency of the TWSS but the amount received by the employee is liable to income tax and Universal Social Charge (USC). This was seen by many as an unfortunate feature of the TWSS and the same issue does not arise in respect of the current Employment Wage Subsidy Scheme. The issue has come into focus again, as employees have, since 15 January 2021, had access to the amount of income tax and USC due on their TWSS payments (through their Preliminary End of Year Statement for 2020, available via Revenue’s MyAccount platform).
The Preliminary End of Year Statement is a preliminary calculation of the employee’s tax and USC for the year and is based on the information held on Revenue’s records. An employee must complete an income tax return to receive a Statement of Liability.
Employees have the following options open to them to pay any tax liability on the TWSS payments:
Option 1: Employees pay the full amount of the tax liability due to Irish Revenue in one payment.
Option 2: Employees use their tax credits, which may be adjusted over a 4-year period, beginning in January 2022, to cover the tax liability. As such, the liability will be spread over four years and the credits set against tax on income will then be reduced; less any additional tax credits for 2020, which they may not yet have claimed (e.g. tax credit for qualifying medical expenses) and these may offset the tax liability on the TWSS.
Employers have the option (but are not under an obligation) to pay employees’ TWSS tax liabilities without an additional tax charge as Revenue have confirmed that there is no Benefit in Kind (BIK) where the employer pays the income tax and USC arising on the TWSS payments. The Preliminary End of Year Statement 2020 will aid employers in determining the amount of income tax and USC due, although this will have to be verified with the employee as this Statement is not provided to employers.
Where employers opt to pay the employees tax liability on the TWSS payments, the employer must retain documentation to back-up the amount they pay to the employee in respect of the employee’s TWSS liability. The concession is only available for payments made by employers on behalf of their employees up to the end of June 2021.
Employers will not receive a deduction with respect to corporation tax for these payments as they would not be regarded as wholly and exclusively incurred for the purposes of the employer’s trade or profession.
Where employers wish to pay employees’ tax liabilities, they can:
make a payment directly to the employee with respect to the TWSS tax liability due (the employee must then pay their liability using RevPay); or amend the last payroll submission of 2020 to include additional ‘income tax paid’ and ‘USC paid’ equalling the liability shown on the Preliminary End of Year Statement. The employer must then pay the additional amounts that are notified via a revised monthly Statement issued by Revenue. The employee’s Preliminary End of Year Statement will be recalculated subsequently. This will show the additional income tax and USC liabilities paid directly by the employer.
There have been some misleading statements in the media concerning this tax liability. As such, communication with employees on this subject should be carefully managed, particularly where employers are not paying the employees’ tax liabilities, as there is potential that employees could raise industrial relations and potentially legal complaints concerning the employer’s management of this matter.
To discuss the above in further detail, please contact us