The Pandemic Unemployment Payment (PUP) is subject to taxation in real-time in 2021, which is in contrast to how it was allocated last year.
This means that you will be taxed as you get paid, instead of having to retrospectively pay tax back like you may have had to at the end of 2021.
Pandemic Unemployment Payments earned in 2021 are treated like other Department of Social Protection (DSP) taxable payments, and this is to ensure tax is collected on the cash at the right time and limits any additional liabilities at the end of the year.
So how will taxation of the PUP payment work, and how will your tax credits change when you go back to work?
Taxation of PUP received in 2021
The 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, and this is done when Revenue ‘annualises’ the weekly amount of PUP.
This is calculated by multiplying the weekly amount by 52, and a person's annual tax credits and rate band are reduced by this amount.
The adjusted tax credits and rate band are applied on a week one basis, and the revisions are shown on the employee’s Tax Credit Certificate (TCC).
A revised Revenue Payroll Notification (RPN) is also made available to their employer.
In most cases, there will be no additional tax liability at the end of 2021.
You may be taxed under Joint assessment, meaning that if you have insufficient tax credits for this reduction to apply, your spouse or civil partner’s tax credits will reduce.
What happens when your PUP payments have ended?
The adjusted tax credits and rate band apply only for the duration of the PUP, meaning they will be readjusted to your normal entitlements on week one basis after the DSP reports to Revenue that they are no longer making PUP payments to you.
The processing of these reports from DSP are prioritised by Revenue, and it is important that if you are returning to work, you alert the DSP, so the information can be passed onto Revenue for processing.
You can find information about how to close your pandemic unemployment payment application on the DSP website.
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