Minister for Finance Paschal Donohoe has defended the decision to alter tax payments on pandemic support payments saying the new system would avoid people facing large unpaid tax bills at the end of the year.
According to the Irish Examiner, people who return to work who had been in receipt of the Pandemic Unemployment Payment (PUP) will have to pay all their income tax this year, while people in a similar position last year were given four years to pay the amount due.
The change, which was announced by the Revenue Commissioners on Wednesday, has been defended by the Minister, who said the Government had not been in a position to tax the PUP at the time because the scheme had been created in an emergency.
The changes mean that some workers may lose some of their tax credits this year, meaning a larger portion of their income is subject to tax.
Mr Donohoe said he had been clear that PUP was taxable, adding: "Concerns did develop on whether PUP recipients would face a really large tax bill at the end of the year.
"In order to avoid that happening again, it will be taxed as we go normally through the year to try to avoid any creation of a big bill pending."
In January, Revenue said 15 per cent of workers who qualified for one or more wage supports during 2020 had a tax liability of between €500-€1,000, while 23 per cent owed less than €500.
The Minister said it was unlikely that people receiving the three lower rates of the PUP would see their value of their tax credits fall below the value of their PUP payment, meaning they would not have any additional tax liability if they return to work this year.
However, Mr Donohoe added: "On the €350 payment, somebody who had been unemployed from the start of January to the start of May this year, it's likely that the additional tax liability that they would have from May onwards will be between €130 and €140."
Mr Donohoe also confirmed the reduced VAT rate would end this month saying the country now has a "more effective way of supporting closed retailers", however, the 9 per cent VAT rate for the hospitality sector will remain in place until November 31st.
