What is Emergency Tax and How Does it Work?

Emergency Tax – a scary concept for those who have been affected by it and something those who have not will hope to avoid.

The truth is that emergency tax is avoidable if the correct steps are taken. With a little foresight and effective communication, employees and employers can navigate this tax. To find out how and learn a little more about emergency tax in general, read on…

 

Emergency Tax affects people whose new employer does not have all the necessary information to calculate the correct tax deductions. 

Emergency tax consists of income tax and Universal Social Charge (USC). These are deducted at higher rates temporarily, resulting in a lower net wage for the affected person.

Related article: Payroll Compliance: How to Meet Payroll Rules and Regulations

 

There are two instances that can lead to the application of emergency tax rates. These are:

1. The new employee hasn’t provided their employer with their Personal Public Service Number (PPSN).
2. The employee’s job isn’t registered with Revenue.

When starting a new job, employees must provide their PPSN number to their employer. Of course, that’s assuming they have previously worked in Ireland. If they haven’t worked in Ireland before, they must contact the Department of Social Protection (DSP) to get one. It’s crucial that the new employee takes these steps as soon as possible. 

Once the employer has the employee’s PPSN, they will request a Revenue Payroll Notification (RPN). This will show the employee’s total tax credits, tax rate band, and Universal Social Charge (USC) rate band. The employer can then make the correct tax deductions from the employee’s pay and take them off emergency tax.  

In certain cases, the employer may also refund any tax or USC that was over deducted. The employee will continue to be taxed on an emergency basis until their employer receives their RPN.

Related article: National Living Wage in Ireland: What Employers Need to Know

 

Let’s say an employer has their employee’s PPSN, but the job hasn’t yet been registered with Revenue. 

In this situation, the employee will be taxed at the standard rate of 20% up to the limit of their rate band during the first four weeks of their new job. Any income above this is taxed at the higher rate of 40%. 

At the end of their first four weeks, if their job is still unregistered, the employee’s entire income will be taxed at the higher rate of 40%. If they have not provided their employer with their PPSN, all their income is taxed at 40% while they are being charged emergency tax.

 

How to claim back emergency tax is more straightforward than most people think. Employees can claim an emergency tax refund when their employer receives a Revenue Payroll Notification (RPN), although this will only happen when:

• They have received the employee’s PPSN.
• The employee’s job is registered with Revenue. 

When an employer has received an RPN, they will take the employee off emergency tax. The RPN will be either for cumulative basis or Week 1 (non-cumulative) basis. But what do these terms mean?

Cumulative Basis

Here, an employer will calculate the correct tax that an employee should have paid since the start of the year (January). 

They will refund any tax and Universal Social Charge (USC) that an employee has overpaid. The date an employer receives the RPN will determine the pay day that includes the refund.

Week 1 Basis

An employer is unable to refund tax and USC until a cumulative RPN is available. However, an employee can contact Revenue to find out why they are on the Week 1 basis.

Related article: What Irish Employers Should Know About Occupational Pensions

 

If an employee is due an emergency tax refund in Ireland, their Statement of Liability will show that they have overpaid Income Tax or Universal Social Charge (USC).

When a refund is issued, it will be transferred directly to the bank account that Revenue has on record within three to five working days.

 

Taking on new staff can be a tedious, time consuming, and even expensive process. So, wouldn’t it be great if you had one less thing to worry about, like payroll? 

SD Worx, formerly Intelligo, is the payroll specialist behind software such as MegaPay. This software is capable of overseeing hundreds to tens of thousands of employees’ payroll, perfect for giving payroll departments back the time to focus on other tasks.

When you outsource payroll to SD Worx, formerly Intelligo, your payroll will be in safe hands. That’s because we employ enterprise-grade data centres through Microsoft Azure while also providing secure access 24/7.

To discover the many benefits of our MegaPay software, talk with us today!