Revenue confirmed to Chartered Accountants Ireland that the PUP is taxable in real time in 2021. This means that PUP payments will be factored into the tax credits and rate band of PUP recipients and their jointly assessed spouses to collect tax due on the PUP in 2021.

Payments from the Department of Social Protection (DSP) are taxable sources of income unless they are specifically exempt from tax. Taxable payments, including the Pandemic Unemployment Payment, are subject to income tax but not USC or PRSI. In contrast to the year 2020, PUP payments are taxable in real-time during 2021.

For payments earned in 2021, the PUP is treated like other DSP taxable payments (e.g. Jobseekers Benefit, Illness Benefit) and is taxed in the following manner:

• DSP informs Revenue on a weekly basis of the amount of taxable PUP paid to each recipient.
• Any tax due is collected by reducing the person’s tax credits and rate band. To do this, Revenue ‘annualises’ the weekly amount of PUP. The notional annualised amount is calculated by multiplying the weekly amount by 52 and the annual tax credits and rate band are reduced by this amount.
• The adjusted tax credits and rate band are applied on a week 1 basis.
• The revisions are shown on the employee’s Tax Credit Certificate (TCC) and a revised Revenue Payroll Notification (RPN) is made available to their employer.

Revenue outlines examples of how this applies on the Revenue website.

At a maximum payment of €350 per week, PUP is amongst the largest DSP payments currently available. As a result, the notional annual amount of €18,200, at a standard tax rate of 20 percent, would require a reduction of tax credits of €3,640 per year or €70 per week. In contrast, Jobseekers Benefit at €203 per week, which is taxed on the same basis, is annualised at €10,556 and would result in a reduction in tax credits of €2,111 per year or €40.60 per week.

Where individuals are taxed under Joint assessment and the recipient of the PUP has insufficient tax credits for this reduction to apply, the spouse/civil partner’s tax credits will instead be reduced to ensure that the appropriate tax is collected. In contrast to the year 2020, this process will mean that there will, in most cases, be no additional tax liability at the end of 2021.

Revenue emphasised that the adjusted tax credits and rate band apply only for the duration of the PUP and are readjusted to the individual’s normal entitlements after DSP reports to Revenue that they are no longer making PUP payments to that person.

Revenue note that it is important that people inform DSP immediately when they return to work so that the information can be passed onto Revenue for processing. Details on how to advise DSP are available on mywelfare.ie.

Chartered Accountants Ireland sought further clarification from Revenue on the application of the Week 1 basis for allocating tax credits. Revenue confirmed that it will be generating revised Revenue Payroll Notifications and Tax Credit Certificates on a Week 1 basis on receiving a claim closure report from the Department of Social Protection. Revenue may revisit all Week 1 cases at some stage, review their situation and if appropriate place the taxpayer back on a cumulative basis.