Small Benefit and Temporary Wage Subsidy

Can the Small Benefit Scheme be used to offset any tax liability built up by employees who were put on the Temporary Wage Subsidy Scheme in 2020? The short answer is yes!

Overview of Small Benefit Scheme
The Small Benefit Scheme allows Irish employers to provide a tax exempt reward for employees of up to €500 per year. As long as the rewards given are-

1) a maximum of €500
2) only one reward per employee per year
3) not paid in cash or by payroll, and
4) not part of any salary sacrifice arrangement

then these rewards are NOT subject to any Benefit-In-Kind (BIK) tax liability – either for the employee or for the employer. This can save up to €657 per employee in Employee Income Tax, PRSI and USC, and Employer PRSI!

Temporary Wage Subsidy Scheme
To support Irish businesses during COVID-19, the government introduced a Temporary Wage Subsidy Scheme on 24th March 2020. The Temporary Wage Subsidy Scheme (TWSS) ran until 1st Aug 2020, when it was replacement by the Employee Wage Subsidy Scheme (EWSS).

Businesses experiencing a 25% decline in turnover could apply to have their employee wages subsidised up to a specified limit for each scheme.

From a tax point of view, the big difference the two schemes is that with the TWSS, neither income tax or USC was applied to the subsidy through payroll (this was changed for the EWSS). As no income tax and USC was applied, a tax liability was built each month that the employee was on the TWSS between March and Aug 2020.

Depending on the level of subsidy paid, the tax credits of the employee, and whether the employer topped up the subsidy or not, at the end of 2020, there may be an outstanding tax liability owed by the employee.

Where a tax liability is owed from TWSS payments in 2020, Revenue has stated that they will collect the tax underpayment by reducing the employee’s tax credits in 2022.

Small Benefit Scheme - Facts

€520 million
if all Irish employers fully availed of the Small Benefit Scheme, the total annual tax saving would be €520 million!

€120 million
Because only 50% of Irish employers use the Scheme, and on average those that do only avail of about 60% of the €500 limit, the actual annual tax saving is in the region of €120m.

Potential €2k Tax Liability
Quantification of any tax liability can only be done on an individual basis based on the employees own personal situation. However, based on average income tax credits, and the tax liability for TWSS could potentially be in the region of €2k per employee.

How can the Small Benefit Scheme help?
If a company has an employee facing a tax liability at the end of 2020 due to the TWSS, then by providing a tax-free voucher or gift card in December 2020, and again in January 2021, the employer could compensate the employee in a tax-efficient way for their reduction in tax-credits in 2022.

Alternatively, they could offer a tax-free voucher in Dec 2020 and again in Dec 2021, and still have compensated the employee for loss of tax credits before their credits are reduced in 2022.

Guide to Small Benefit Scheme 2020
Our 2020 edition of the Small Benefit Scheme Guide gives you expert info, insights and case studies for getting the most out of the scheme. Download it for free today by clicking the Download Now.

Free Expert Guide to the €500 Small Benefit Scheme 2020 Get the Expert Guide to the Irish Revenue's tax-free reward scheme for Irish employers and employees. Small Benefit Rules 2020 Tax Savings Calculations 2020 Best Gift Cards for your Staff Small Benefit & Wages Subsidy Scheme Paying Bonuses Tax-Free Extending the Scheme Year Round Other Employee Reward Tax Schemes Small Benefit FAQs