Do I have to pay tax on my COVID-19 payment?
If you get the COVID-19 Pandemic Unemployment Payment, you may owe tax to Revenue at the end of the year
Many people have lost their jobs or had their hours reduced as a result of the COVID-19 pandemic. Most people who have found themselves out of work have applied for the COVID-19 Pandemic Unemployment Payment, a weekly payment to support those who are unemployed as a result of COVID-19.
What many people don’t realise is that this payment is taxable, which means you may have to pay tax on this income later on. Whether or not you have to pay tax on it will depend on your overall income during the year.
How much tax will I have to pay on the Pandemic Unemployment Payment?
If you are working for an employer, your tax is usually deducted every time you get paid, which means you are paying your tax as you go throughout the year. However, tax is not deducted from your COVID-19 Pandemic Unemployment Payment before it goes into your bank account, which means you may owe that tax at the end of the year.
In January 2021, you will be able to view a 'Preliminary End of Year Statement' from Revenue, which will show you:
- Details about any income you received that has been reported by your employer
- Information on how much money you received from the Pandemic Unemployment Payment
- A preliminary calculation (based on the information that they have) of your income tax and Universal Social Charge (USC) for 2020
- Whether your tax is balanced (has been paid in full), underpaid, or overpaid for 2020
Based on this, you will have an idea of how much tax you will need to pay - however, you may need to provide additional information to Revenue that could change the amount.
What do I do with my Preliminary End of Year Statement?
Once your statement is available, you can make any necessary updates to your personal record on your Revenue myAccount.
You will need to fill out an Income Tax Return, which will allow you to:
- Declare any additional income that was not reported in your Preliminary End of Year Statement
- Claim any additional tax credits you might be entitled to
Tax credits are used to reduce the amount of tax you pay. The more tax credits you have, the less tax you will have to pay.
Based on any additional information you provide, the amount of income tax or USC you need to pay may increase or decrease.
How to pay tax on your Pandemic Unemployment Payment
Once the final amount of tax you owe has been calculated, you have a few options for paying it back:
Paying through myAccount
You can choose to pay your tax back in full or to make a partial payment using a debit card, credit card or a direct debit from your bank by logging into your Revenue myAccount and going to 'Payments/Repayments'.
Paying through reduced tax credits
To collect the tax you owe on the COVID-19 Pandemic Unemployment Payment, Revenue can reduce the amount of tax credits you have.
Tax credits are used to reduce the amount of tax you pay. The more tax credits you have, the less tax you will have to pay. This option will be interest free (meaning you won't pay more than what you owe).
This means that you will pay a slightly higher rate of tax each time you get paid from work until it has been paid off. You will be paying the tax back over time, over a period of four years (2022 to 2025).
The reduction in tax credits will start in January 2022.
Need more information?
Would you like more information? Maybe you would like to talk through your own situation? Get in touch through our online chat system for 16 to 25 year olds - Monday to Friday 4pm to 8pm.
Feeling stressed or overwhelmed?
Dealing with tax can be stressful, but there is no need to panic. If you are feeling overwhelmed by this situation and you want to talk:
- Get anonymous support 24/7 with our text message support service
- Connect with a trained volunteer who will listen to you, and help you to move forward feeling better
- Text SPUNOUT to 50808 to begin
- Find out more about our text message support service