Question re: being on wrong increment in public sector job

[DLD]

Wondering if anyone can answer this question.

The OHs payslip this week had a large sum of money credited in the ARREARS section, over 10K.

They called their department who advised them that they had been on the wrong pay scale/increment for nearly a decade!

Thing is, the tax taken off was over 7k (which of course would likely include their fortnightly tax as well).

Wondering if all this money being dumped in one wage packet would have influenced how they were taxed i.e. could the entire amount have been taxed at the higher rate? And if the error had been spotted 9 years ago, could they have ended up paying less tax over the years as the money would have been more spread out?

I hope I'm wording all this clearly enough.

 

[mathepac]

Get their "deepartmint" to put their explanation in writing and forward a copy to the local tax office (If there's a bunch of people impacted by this they should all do it, but as individuals)

They may get sympathetic treatment from the tax inspector, who may allow a spreading the payments and the tax burden over preceding years. Bear in mind that a tax-payer can only request a 4 year retrospection.

 

[torblednam]

There's no sympathy required here.

The process is that the employer, making a payment of emoluments in 2017 is obliged to operate PAYE on it in the normal way. That's how the PAYE system works - it's a system for collecting tax, not a system of assessing individuals' final tax liabilities.

The individual themselves is chargeable to income tax on emoluments by reference to the year the income relates to. This is an established principle of tax law and there is case law to that effect dating back to the early 20th century.

So as Mathepac said, the individual needs confirmation from HR in their department of the make up of the back pay; they can furnish this to Revenue with a request for all affected years to be reviewed and the 10k of income appropriately spread across the years.

What should happen is that they will have underpaid tax for all back years (as their taxable income will increase for every prior year) and they will have a substantial overpayment of tax for the current year. If they were a standard rate taxpayer in the earlier years they may get a good chunk of the tax that has been deducted back. If they weren't, then it may not make much difference.

The position with regard to USC/PRSI is different AFAIK as these are due by reference to the payment itself rather than the period that the payment actually relates to. However, this may work out in the individual's favour as rates of income levy / USC were higher for the last 8-9 years than they are in 2017.

I'm not sure what the position is with the PRD, but that's not a tax, it's a deduction from pay. But it needs to be considered.

It may be worthwhile for this person to engage a tax advisor well versed in this type of issue to deal with it and to check the numbers, because if they are suffering more taxation than they otherwise would have, and it's a material amount in the difference, they should probably be seeking further compensation from their employer to make good their net position.

Also, as the back years all need to be opened up so as to account for additional income, the individual should ensure that at the same time they claim any and all previously unclaimed tax credits / reliefs.

 

[Black Sheep]

If the revenue isn't sympathetic to the OH does he have any comeback as it appears it was an error on their part.
It brings me back to a case re taken to the Ombudsman many years ago (Joe Meade) in which a person was awarded his dues plus an amount "for lack of spending power"

 

[DLD]

Thanks for all the feedback everyone.

I had assumed that overall the tax would balance itself out, i.e. the lump being taken now is a big proportion but perhaps the OH was undercharged for that period too.

Might look into paying a tax advisor to look into it.

 

[Páid]

This happened my wife also.

Revenue looked at her case. They are adamant that usc and the pension levy must be paid on earnings that were earned in years where those deductions did not exist because they were paid in a year that they did exist.

I am not at all happy with the department in question and I intend to write to the Minister about it so that he is aware what is happening.

https://www.askaboutmoney.com/threads/tax-back-on-back-payment-of-salary.193570/