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Temporary unemployment: an unpleasant surprise awaits

© Anastasiia Chepinska/Unsplash

Anyone who has been placed on temporary unemployment as a result of the Covid-19 situation should stand by to receive an unpleasant surprise: a tax demand for between €1,000 and €1,500.

The reason, like anything to do with tax, is far from simple.

Temporary unemployment is the system used in normal times to compensate workers when their employer is unable to operate due to circumstances beyond their control – a factory fire, say, or a cyber-attack.

The government then takes over paying the workers unable to work, a percentage of their normal earnings. That allows the employer to concentrate on getting the company back on its feet.

When the coronavirus became a pandemic, the government ordered many businesses to close, and people employed in those sectors were taken up by the system of temporary unemployment. Those concerned, an estimated 600,000 people, would receive an allowance worth 70% of their normal earnings.

Thierry Bodson, president of the socialist trade union FGTB, explained what went wrong to Le Soir.

The normal rate of temporary unemployment is 65% of earnings, but Sophie Wilmès, prime minister at the time, agreed to increase that to 70%. At the same time, however, she went against union advice and lowered the amount of withholding tax everyone pays from around 26% to 15%.

The move was well meant. It would mean those affected – who were already losing 30% of their pay as a result of the epidemic – would have more cash in their pockets. However the side-effect was that they were paying less of their annual tax bill in advance.

And there must come a reckoning.

When the final calculation is done, the tax will be calculated on the basis of earnings plus benefits, minus withholding tax paid, and the result taxed at 30-35%. But because the withholding tax already paid is less than normal, Bodson said, recipients of temporary unemployment can expect to receive a bill for between €1,000 and €1,500. And it is too late, he told the paper, for the measure to be reversed.

Alan Hope
The Brussels Times