If you were in receipt of the TWSS employment subsidy in 2020, it will have a significant impact on your tax result (large potential underpayments), what steps you should take to deal with it and the timing of your tax return.
To illustrate the effects of the scheme on your end-of-year results we have prepared a full report in order to explain what exactly what the TWSS is and what options you have to deal with it. You can access this here.
What is the TWSS?
TWSS, or the Temporary Wage Subsidy Scheme, was an employment subsidy available to employers negatively impacted by the pandemic. Key features being:
- It was operated from the 26th March 2020 to 31st August 2020.
- The maximum weekly payment was €410 paid as part of your wages from your employer.
- The TWSS is taxable. Chargeable to both Income Tax and USC.
- The TWSS was not taxed at source (as in through payroll).
- Underpaid tax due to the TWSS will be collected as part of your tax return
For full information on how the TWSS operated , please see the revenue resource here.
How much could the underpayment be?
The scheme was available for 23 weeks. If you were on the max payment of €410 for this term, you will have received €9,430 of untaxed pay.
- If your marginal rate of tax is 40%, then all else being equal you will have an underpayment of income tax of €3,772
- If your marginal rate of tax is 20%, it is likely you will have an underpayment of income tax of €1,886
- You will also have a USC charge on the TWSS. For most people this will increase the underpayment by another €424.
Your employer will receive a calculation of the amount of the underpayment due to TWSS as a tool within the company payroll application.
What to do?
Firstly, we recommend you check your preliminary result. From a rough assessment of clients with TWSS, we are seeing 90% with underpayments of tax. Please note, if you have an underpayment, claiming any additional tax credits, including medical expenses, will reduce the underpayment and trigger the result.
Where you have an underpayment:
Employers have been given the opportunity to pay your tax underpayment due to TWSS in a tax efficient manner. For full details on this scheme, see here
They have until the end of June 2021 to do so. It is purely optional for the employer to pay your tax underpayment – no obligation on them. We recommend that you do not make a tax return for 2020 until the employer has had the complete window of opportunity to meet the TWSS underpayment of tax. For simple cashflow reasons many employers who are in a position to pay their employees tax underpayment due to TWSS will wait until close to the deadline.
We will update our guidance on this as the year progresses.
May 2021 update to guidance for employers paying TWSS liabilities
Revenue have updated guidance on how employers can pay the TWSS liability of their employees.
- Previously employers had until the end of June to pay employee TWSS liabilities if they chose to. They have extended this deadline to the end of September 2021.
- Have stated that employees who are self-assessed (including the business owner) can be included in the scheme. Previously if you were not form 12, so getting a preliminary result through ROS, you were not included.
The extension is pretty important as companies are still agreeing their TWSS with Revenue and have until June to complete that – so good they get the breathing space to consider the scheme for their employees. Of course, need to stress, the scheme is completely optional for employers.
We still recommend that you do not finalise the liability until the employer has had the fullest of time to consider paying. However we have made returns for people where they require it – such as for Help to Buy scheme applications.