Employers Paying Employees 2020 Tax Liability
Employers Paying Employees 2020 Tax Liability
Revenue have issued a very useful concession, to cover situations where an employer wishes to pay the Income Tax/USC liabilities of their employees, which arise due to the TWSS.
In summary, Revenue will accept a payment of the underlying tax liability, without having to re-gross that payment for payroll purposes.
Example
An employee has an Income Tax/USC liability due to the TSSS of: €1,000
In the absence of Revenue’s latest concession
If the employer wished to pay this liability, they would have to gross up the payment at the employee’s marginal tax rate. The resulting gross salary would be (ignoring employee’s PRSI/USC):
- At 20% marginal tax rate €1,250
- At 40% marginal tax rate €1,666
- Employer’s PRSI would also be payable (up to 11.05%)
With the benefit of Revenue’s latest concession
The employer will now only have to pay the actual liability of €1,000.
We wish to stress that there is no obligation whatsoever on any employer to pay this liability. It is purely voluntary.
The Process
- In mid-January 2021, Revenue will make a 2020 “preliminary end of year statement” available to each employee; this will assist in determining the amount of Income Tax and USC due by that employee which relates to the TWSS.
- All employees, including those that benefitted from the TWSS, can view their statement in Revenue’s “MyAccount” and each employee will be able to see if there is an underpayment of Income Tax or USC arising due to the TWSS.
- The employer will have a choice of either:
- Providing funds directly to the employee to meet their tax liabilities, with the employee then paying their liability to Revenue, or
- Paying that liability directly to Revenue.
- For both options, the employee must file a 2020 tax return.
Where the employer pays the liability
According to Revenue’s guidance notes, the process here (in Revenue’s words) involves the following:
Amend your last payroll submission of 2020. You must add additional ‘IT paid’ and ‘USC paid’ that equals the liability shown on the Preliminary End of Year Statement. This must be done for each employee concerned. Some payroll packages do not provide this facility. It may be necessary to enter the information manually through Revenue Online Service (ROS).
You need to pay the additional amounts that are notified via a revised monthly Statement issued by Revenue.
The employee’s Preliminary End of Year Statement will be recalculated subsequently. This will show the additional IT and USC liabilities paid directly by you.
Sundry Points
- This concessionary treatment is only available for payments made by employers up to the end of June 2021.
- Adequate documentation and records must be made available.
- No BIK will apply to any payments made on behalf of employees.
- The employer will not receive a tax deduction for these payments.
This is a very welcome development indeed and will hugely benefit employers who had been planning to assist employees with their TWSS tax liabilities.
Should you require any further information on the above, please do not hesitate to call or email your usual PSC contact.