The Director of Public Policy at Chartered Accountants Ireland has said Revenue will collect the tax owed on the Pandemic Unemployment Payment (PUP) for 2021 by reducing people's tax credits when they return to work.
Brian Keegan said that this is the normal course of events for most social welfare payments.
But it will come as a shock to PUP recipients because Revenue had previously said that the tax liability for 2020 is payable over four years.
Reductions applied to 2021 tax credits will be immediate on return to work.
Mr Keegan said this means that if a person receives a PUP of €300 a week, then their tax credit will be reduced by €60 to account for the tax due on that payment.
As a person receives the PUP, their tax credits will reduce so Revenue can "collect in real time", he said.
He explained this is deducted from the tax free credits a person receives when working so when an individual returns to work, they will be paid less than they might have expected.
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Mr Keegan said this is coming as a bit of a surprise for people because there has not been a formal announcement from Revenue.
Marian Ryan, Consumer Tax Manager with Taxback.com, said while it might not feel like it, the clarification from Revenue could be seen as a somewhat beneficial development for recipients of the PUP this year.
This is because it means that they will not face a big tax bill next January.
"Rather, the tax that is owed, which would have to be paid anyway, will now be spread out over the course of the year," she said.
"If Revenue were to treat the 2021 payments in the same manner as they did with the 2020 payments, it would mean taxpayers would face ever-increasing reductions in future tax credits."
Ms Ryan added that the impact should not be too dramatic on recipients.
"Assuming each recipient has their full 2021 tax credits of €3300 available to them, this would equate to €63 per week," she said.
"If they receive the full PUP payment of €350, and are taxable at 20%, the PAYE due will be €70 less their €63 tax credits. So the PAYE due on this would be €7 for every week the payment was received".
Meanwhile, Assistant Secretary at the Department of the Taoiseach Liz Canavan said a total of €5.8 billion has been paid out on the pandemic payment since March last year.
At a media briefing this morning, she said that last week 481,000 people received the PUP, up 1,698 since the previous week and at a weekly cost of €144.6m.
11,000 people had closed their PUP supports since the last payment, she added.
Since March 2020, around €5.8 billion has been paid out under the Pandemic Unemployment Payment scheme. Almost 11,000 people have closed their PUP claim since the last payment. | Read more: https://t.co/HpctZNic2c pic.twitter.com/jwd3QLzgTS— RTÉ News (@rtenews) February 10, 2021