Refunds of Income Tax to the Employee
- Recording of refunds
- Refunds arising from the operation of the cumulative system
- Absence from work for some cause
- Reimbursement of employer for tax refunded to employee
- Refund of tax during unemployment
1. Recording of refunds
In the course of the operation of PAYE a refund of tax to an employee may be made by the employer (paragraph 2. Refunds arising from the operation of the cumulative system and paragraph 3. Absence from work for some cause) or by Revenue (paragraph 5. Refund of tax during unemployment). An employer who makes a refund of tax should record it as a separate entry on the employee's PAYE record.
(See PRSI Guide from the Department of Social Protection 
regarding refunds of PRSI contributions overpaid).
2. Refunds arising from the operation of the cumulative system
The operation of the PAYE system may result in the cumulative tax credits of an employee on any pay day exceeding the cumulative tax due. In such a case the employer will not deduct tax from that pay (on that pay day) and may also have to make a refund of some or all of the tax deducted from the employee's previous pay in the current tax year.
Example
An employee earns €600 per week.
His weekly tax credits are €60 and his standard rate cutoff point is €653.
(For the purposes of this example the standard rate of tax is taken as 20%)
| Cumulative net pay to date |
Cumulative standard rate cut-off point |
Cumulative gross tax |
Cumulative tax credits |
Cumulative tax due |
|---|---|---|---|---|
| Week 20* €12,000 | €13,060 | €2,400 | €1,200 | €1,200 |
| Week 21** €12,600 | €13,713 | €2,520 | €1,428 | €1,092 (€108 refunded) |
*Up to week 20 the employee has earned €12,000 and paid €1,200 tax
**In week 21 the employer receives an amended cumulative tax credit certificate showing his weekly tax credits are now €68 and his standard rate cut-off point is €653.
As the cumulative basis applies, the increased credits are granted with effect from the previous 1 January.
As tax of €1,200 has already been deducted, the employer should give the employee a refund of €108
Cumulative tax due week 21 - €1,092
Cumulative tax deducted to week 20 - €1,200
Refund due - €108
3. Absence from work for some cause
Where the employee is absent from work (e.g. factory closed temporarily due to fire damage or leave without pay agreed with the employer) and is not entitled to receive any pay on the usual pay day, nor entitled to receive any benefits from the Department of Social Protection, the employer, if the cumulative basis applies, either:
- Makes any refund of tax which is due to the employee in accordance with the cumulative tax credits and standard rate cut-off point which applies on that pay day.
Example:
An employee earns €600 per week. His weekly tax credits are €68 and his standard rate cut-off point is €653 (For the purposes of this example the standard rate of tax is taken as 20%)
| Cumulative net pay to date |
Cumulative standard rate cut-off point |
Cumulative gross tax |
Cumulative tax credits |
Cumulative tax due |
|---|---|---|---|---|
| Week 12* 7,200 | €7,836 | €1,440 | €816 | €624 |
| Week 13** 7,200 | €8,489 | €1,440 | €884 | €556 (€68 refunded) |
* Up to week 12 the employee has earned €7,200 and paid €624 tax
** The employee is absent in week 13, receives no pay for that week and applies for and makes arrangements to collect the €68 refund.
Or (in exceptional circumstances) -
- Sends to Revenue, not later than the first usual payday after the absence commences:
- A notification of the employee's absence from work
- A notification of the employer's intention to make no repayment
- Particulars of the employee's pay and tax up to the last pay day before the absence commenced.
An employer who sends the information at b. above to Revenue within the time limit need not make any repayment to the employee during the employee's absence from work.
The employer should notify Revenue immediately the employee resumes work. They should also take into account any repayment of tax made to the employee of which they are notified by Revenue in calculating tax on any payment due to the employee after resumption of work and before the following 1 January.
See Calculation of tax under the PAYE system part 11 regarding the situation where an employee is absent due to illness and receives or is entitled to receive Illness Benefit (formerly known as Disability Benefit) or Occupational Injury Benefit from the Department of Social Protection.
4. Reimbursement of employer for tax refunded to employee
An employer who makes a refund of tax to an employee should deduct the amount refunded from the next remittance of PAYE tax to be paid to the Collector General. (See Payments to the Collector General part 4).
If, however, the next remittance of PAYE tax to be paid is less than the amount of the refund made to the employee, the employer may apply for reimbursement by giving details regarding the refund and quoting their PAYE registered number to
The Collector-General,
Sarsfield House,
Francis St,
Limerick.
5. Refund of tax during unemployment
Revenue will make any refund of tax due to an employee who has become unemployed. The employee may apply for refund directly to Revenue on form P50 accompanied by parts 2 and 3 of their form P45.