As an employer, you should deduct payroll taxes from employees’ salaries and remit them to the relevant authority. Unfortunately, some workers don’t provide sufficient information for tax remittance, and you have to apply an emergency tax on their salaries. Fortunately, emergency taxes are a temporary fix as the employee registers their new job with the Revenue Commissioners or updates their Personal Public Service Number (PPSN). Since emergency taxes are only deducted when the pay band is unclear, once an employee updates their information, they are eligible for a tax refund. Explore what emergency tax entails and ways employees can receive a refund.
What Is an Emergency Tax?
In Ireland, you are legally obligated to charge emergency tax in certain circumstances. For instance, when you don’t receive sufficient personal information from an employee for tax purposes, you have to tax on an emergency basis. When employees don’t register their new job with Revenue, it can be challenging to determine their tax band and make statutory deductions.
An emergency tax is a deduction applied to employees’ earnings at a higher tax rate for a temporary period. It’s the main reason many new workers take home a smaller paycheck in the first weeks of employment. The good news is emergency taxes are avoidable, and your employees can get a refund.
What Are the Emergency Tax Rates?
When employees provide their PPSN on the starting day, normal emergency tax rules apply. Your workers receive a tax credit and rate band in the first few weeks of employment. In normal emergency rules, employees also get a Cut-Off Point (COP) for the first four weeks of employment based on the single personal tax credit regardless of the worker’s marital status. Employees’ income is taxed at the standard rate of 20% for up to eight weeks. The first four weeks qualify for the single personal tax credit and rate band, but employees don’t receive a tax credit after week five. From week nine onwards, the emergency rates increase to 40% of an employee’s income.
Employees that don’t provide a PPSN are taxed at the higher rate of 40% from the first week until they provide the necessary information.
How Long Can an Employee Be on Emergency Tax?
You are obligated to deduct emergency taxes on employees until they provide a PPSN and verify their details. Verification begins immediately when your employee provides the relevant information, and Revenue can send the payroll notification before the next pay cycle. When an employee’s details are uploaded, they are no longer on the emergency status, and you can charge the normal payroll taxes for their tax band.
How Can Employees Avoid Emergency Taxes?
Most employers deduct employment taxes through the Pay As You Earn (PAYE) system. You also pay social insurance or PRSI and universal social charge from employee income. When an employee provides insufficient information, determining their tax rates is challenging. Hence, you are obligated to charge an emergency tax until you determine their tax band. Employees can avoid paying emergency taxes with the following tips:
• Submitting their PPSN to your payroll office: When employees provide PPSN on their first working day, you can notify Revenue of their start date, which creates a new employment record for them. You also use the PPSN to access an employee’s tax credits and tax bands and make the necessary statutory deductions. However, it is important to verify the PPSN number to ensure it aligns with other information provided like the previous employer.
• Registering their new job: You should educate employees on the importance of informing Revenue of their new job to ensure their employment taxes are on the right track. Whether it is a part-time or temporary job, employees should register it for taxation purposes. When employees register, you receive a Revenue Payroll Notification (RPN) from Revenue with details on the income taxes and Universal Social Charge to deduct from the employees’ pay. An employee with a second job can also register it and allocate the tax credits and rate bands with different employers. In this case, you will receive an RPN with specific deductions on the worker’s income.
• Reviewing tax position after unemployment: When an employee has been unemployed for four weeks, they accumulate tax credits. Once they land a new job, they must review their tax position and available credits. If the unemployment gap is significant, an employee should check with Revenue to ensure the Universal Social Charge (USC) and taxes are up-to-date. The new employer should deduct taxes from the beginning of the employment.
How Employees Can Claim Emergency Taxes
Employees usually don’t receive notifications on emergency taxes. That means most discover the deductions from their pay slips. While you are legally obligated to deduct emergency taxes on the payroll, it can take a toll on your workers. Fortunately, your employees can receive a refund on the emergency taxes once they update their information with Revenue. How do they get their emergency tax funds back?
You receive a Revenue Payroll Notification when the employee registers their job with Revenue and provides a valid PPSN. After verifying the details, you can take your employee off the emergency tax, and they will receive the refund based on the Revenue Payroll Notifications.
When the company has a cumulative RPN, you calculate an employee’s correct tax from the beginning of the year or employment period. You also refund any overpaid Universal Social Charge (USC) and taxes in the next pay cycle. If you receive an employee’s RPN at the beginning of the month, the next paycheck should include a refund of the emergency taxes.
When you have a non-cumulative RPN of one week, you cannot pay employee refunds on emergency taxes and USC until you have a cumulative RPN. For your company to move from non-cumulative to cumulative, you should contact your Revenue Office. Find out why you are on a Week 1 basis. When your status changes to cumulative RPN, you can pay refunds on emergency taxes to employees.
What happens if an employee moves to a new job before claiming their emergency tax refund? You only pay refunds on emergency taxes and overpaid USC if the employee still works in your company. When they find a new job, you are not obligated to refund if you didn’t receive the RPN from Revenue. However, employees can still claim their emergency tax refunds from the new employer. When they submit their personal information and update Revenue of the job change, the new employer receives the cumulative RPN.
If an employee leaves your company before getting the refund and hasn’t moved to a new job, they can still receive their money back. They can apply for a refund at the Revenue Office. If you are their last employer, you provide Revenue with their salaries, tax details and leaving date. Employees can claim for unemployment repayment if the emergency tax was applied on their last employment or if they are leaving Ireland permanently. The application is completed online or through a form mailed to the Revenue Office.
If your employee has unclaimed emergency tax refunds from previous years, they must submit an income tax return for the year. The Income tax return allows Revenue to review the emergency tax deducted and issue any refunds due. Employees can claim all their emergency tax refunds through the Revenue website.
Emergency tax policies are usually complicated. Educating your employees on the value of providing all the necessary payroll information for tax purposes is important. While emergency taxes are a legal obligation, you can help your employees avoid them. HR professionals and payroll specialists can assist employees in claiming emergency tax refunds from Revenue. Payroll experts also ensure your company charges the correct amounts of emergency taxes based on the existing regulations.