Taxation of the Pandemic Unemployment Payment (PUP)

Taxation of the Pandemic Unemployment Payment (PUP)

Overview

PUP is available to employees and the self-employed who have lost their job on or after 13th March 2020 due to the COVID-19 pandemic. The PUP is paid by the Department of Social Protection (DSP).

Payments from the DSP are taxable sources of income unless they are specifically exempt from tax.

PUP is a taxable payment. It is subject to Income tax (IT) but not Universal Social Charge (USC) or Pay Related Social Insurance (PRSI).

How PUP received in 2020 is taxed

During 2020 the payment of PUP was not taxable at the time of receipt from the DSP. This ensured that the person could register for and start to receive PUP payments as quickly as possible.

In September 2020, Revenue stated that PUP tax liabilities would become due at the end of 2020. The tax liability could either be:

collected interest free, by reducing the person’s tax credits over four years, starting in January 2022.
fully or partially pay any Income Tax (IT) and Universal Social Charge (USC) liability through the Payments/Repayments facility in myAccount. (Where the liability is partially paid the balance could be collected interest free over four years.)

Taxation of PUP received in 2020

In January 2021, Revenue made a Preliminary End of Year Statement available.

This shows:

detail of any income received and reported by the employer or employers
information on the amount of PUP the person received
a preliminary calculation of the person’s IT and USC for 2020
whether the person’s tax position is balanced, underpaid or overpaid for the year.

What the person needs to do

They need to update their personal record in myAccount. This is done by completing an Income Tax Return to:

declare any additional income
and
claim any additional Tax Credits due, such as qualifying health expenses or the Stay and Spend Credit.

Any additional information provided may impact the individual’s final IT or USC position.

What happens if a person owes IT?

They can either fully or partially pay any IT liability through the ‘Payments/Repayments’ facility in myAccount.

Alternatively, Revenue will collect the full or any remaining liability, interest free, by reducing the person’s tax credits over four years (2022 to 2025).

The reduction of tax credits will start in January 2022.

How PUP received in 2021 is taxed

In contrast to the year 2020, PUP is taxable in real-time during 2021. (This means a person is taxed when they are paid.) PUP payments earned in 2021 are treated like other DSP taxable payments.

This process ensures tax is collected on the payment at the right time and limits any additional liabilities at the end of the year.

Taxation of PUP received in 2021

The DSP informs Revenue on a weekly basis of the amount of taxable PUP paid to each recipient. Then:

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. This is calculated by multiplying the weekly amount by 52. 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. A revised Revenue Payroll Notification (RPN) is made available to their employer.

In most cases, there will be no additional tax liability at the end of 2021.

Joint assessment

A person may be taxed under Joint Assessment. If they have insufficient tax credits for this reduction to apply, their spouse or civil partner’s tax credits will reduce.

Process when PUP payments have ended

The adjusted tax credits and rate band apply only for the duration of the PUP. They will be readjusted to the person’s normal entitlements after DSP reports to Revenue that they are no longer making PUP payments. The processing of these reports from DSP are prioritised by Revenue.