Covid Temporary Wage Subsidy Scheme tax impact

DesperateDan

Sorry if this has been asked before I am hopeless with tax. Am I correct in saying everyone is pretty much in the same boat here and will get a large reduction in their tax credits over the next couple of years (i.e. a take home pay cut)?

Here is my pre-covid wages from Feb:
Income 4,166.67
Basic Salary 4,166.67
Deduction 1,129.72
PRSI - Employee 170.40
PAYE 824.03
USC 135.29
Nett Pay € 3,036.95

--
Employer Contribution 475.00
PRSI - Employer (1) 475.00
Benefit 93.41
Medical Insurance Benefit 93.41

Here is my last wages from June:
Income 1,497.77
Gov C-19 Wage Top-up 1,497.77
Deduction 22.82
PAYE 7.88
USC 14.94
PRSI - Employee 0.00
Reimbursement 1,584.74
Gov C-19 Wage Subsidy 1,517.00
Work at Home Allowance 67.74
Nett Pay € 3,059.69

--
Employer Contribution 7.49
PRSI - Employer 7.49

As you can see I am paying basically no tax whatsoever and my wages have been unaffected. As this scheme is now going to go on until next Spring, can anyone tell me what kind of impact this will have?

Let's say this stays the way it is until next Feb. That means I will have received 1,517.00 * 12 = €18,204 from the government. With €6,600 in tax credits (3,300 over two years), does that mean I am going to owe the govt at least 18,204 - 6,600 = €11,600 next March?

y0ssar1an22

it depends how long revenue split it over.

extra untaxed income of 18204 will reduce your SRCOP by that. say (standard) 35300 - 18000 = 17300 will be your new SRCOP. credits will reduce by 18204/5 = 3640. that will need to be split over 2 years or else you will pay extra tax in the 1st 1 (maybe more pay runs).

you're in the top rate so i would advise putting 40% of that away. you should be on week 1 by now to help spread this burden.

but no, you wont have a sudden bill to pay. it will be phased.

DesperateDan

y0ssar1an22 wrote: »

it depends how long revenue split it over.

extra untaxed income of 18204 will reduce your SRCOP by that. say (standard) 35300 - 18000 = 17300 will be your new SRCOP. credits will reduce by 18204/5 = 3640. that will need to be split over 2 years or else you will pay extra tax in the 1st 1 (maybe more pay runs).

you're in the top rate so i would advise putting 40% of that away. you should be on week 1 by now to help spread this burden.

but no, you wont have a sudden bill to pay. it will be phased.

Thanks OK, so it reduces the amount you are allowed to pay 20% on? If I earn 50k over the 12 months if it runs until Feb and 17k is at 20% (3420), and remainder 33k is at 41% (13530), 13530+3420 minus tax credits of 6600 = 10350 right? Ignoring extra USC etc, or am I way off? I suppose I am not understanding where you say my credits will be reduced by 3640

Ciaran

y0ssar1an22 wrote: »

extra untaxed income of 18204 will reduce your SRCOP by that. say (standard) 35300 - 18000 = 17300 will be your new SRCOP. credits will reduce by 18204/5 = 3640. that will need to be split over 2 years or else you will pay extra tax in the 1st 1 (maybe more pay runs).

This isn't right. Tax credits will be reduced by the amount of tax owed for 2020. SRCOP will be unaffected. In your example, if the 18204 is all to be taxed at 40%, credits would be reduced by 7280 which would be split over at least 4 years.

Looking at the figures in the OP however, the total income for the year is 38,288 (4,166.67*2 + 2,995.54*10) with 14,977.70 untaxed.

So the tax due is:
11,989 @ 20% = 2,398
2,988 @ 40% = 1,195
Total tax = 3,593

Likely, credits will be reduced by 898 for 4 years so roughly €75 a month.

y0ssar1an22

i suppose it depends on how revenue are going to tax the Covid income. I thought they were going to use the same method as they use for maternity, and others SW payments:


https://www.revenue.ie/en/jobs-and-pensions/taxation-of-social-welfare-payments/how-deasp-payments-are-taxed.aspx

that is done by reducing SRCOP and credits.

have they said yet how they will recover the tax?

DesperateDan

Ciaran wrote: »

This isn't right. Tax credits will be reduced by the amount of tax owed for 2020. SRCOP will be unaffected. In your example, if the 18204 is all to be taxed at 40%, credits would be reduced by 7280 which would be split over at least 4 years.

Looking at the figures in the OP however, the total income for the year is 38,288 (4,166.67*2 + 2,995.54*10) with 14,977.70 untaxed.

So the tax due is:
11,989 @ 20% = 2,398
2,988 @ 40% = 1,195
Total tax = 3,593

Likely, credits will be reduced by 898 for 4 years so roughly €75 a month.

Thanks Ciaran it's great to see those calculations make sense. Yeah I was looking into 2021 considering they have said it should end in Spring there could be 2 or even 4 months of the same story but I guess I'll be worrying about 2021 in 2022

I am skeptical my company actually needs this subsidy, and €100 will be noticed alright but it's great to know if I put that away each month now it should help