PAYE Tax Changes
Revenue has made some Income Tax Changes For Recipients of the Pandemic Payments. They have changed the tax basis for all employees that received payments under either the Wage Subsidy Scheme or the Pandemic Unemployment Payment.
All affected employees have been moved on to Week 1 basis.
Revenue sent notifications to employers to operate the ‘Week 1 basis’ from 21st June 2020. All payslips after that date should be calculated on the Week 1 basis. Revenue Information.
Cumulative Tax.
Normally – Revenue taxes employees on a Cumulative Basis .
In practice, this means that a person’s income tax liability is not calculated on the payment they receive each month/week in isolation.
Instead, the tax liability arising on a person’s total income from the start of the tax year is calculated.
The tax deducted in each pay period is the cumulative tax due from 1st January, reduced by the amount of tax already deducted in other pay periods.
Week 1 basis
Taxation on a week 1 basis means that the tax on each wage payment will be worked out individually without reference to the accumulated tax credits or tax paid for the year.
This means that no tax rebates will be paid if due. It also means that any underpaid tax for the year will not suddenly be taken out of one payslip when an employee returns to work after being laid off because of Covid-19.
Note: This week 1 basis is also known as ‘non-cumulative basis’ or month 1 basis for monthly employees.
What Effect Will Thes Income Tax Changes Have?
Many employees on the Wage Subsidy will have received tax refunds since the start of the scheme. Changing to a non-cumulative tax basis will prevent any sudden recovery of those refunds. It will help to minimise future potential tax liabilities at the Revenue year-end reconciliation.
People returning to work after being on he Pandemic Unemployment Payment will also be placed on Week 1 basis for tax.
This means they will not be hit with any unexpected tax deductions because of any underpaid tax. It also means they will not get any automatic tax refunds which might just have to be repaid later.
Revenue will review all the affected employees at year-end to work out any outstanding under or overpayments of tax. This review will include, as far as we are aware, the PUP payments and wage subsidy payments.
More information on Taxation of the Pandemic Unemployment Payment
How Do You See Which Tax Basis You are On ?
It should be clearly stated somewhere on your payslip whether you are on a Cumulative or Week 1 basis. The words Cumulative or Week 1 (or Month 1) should appear quite clearly. Although be aware that sometimes abbreviations are used. For example, Cumulative may appear as “Cumul”.