Tax refunds can sometimes feel like winning the lottery, a few hundred dollars hitting your bank account from nowhere, but they are a crucial part of New Zealand's tax system that ensures we all pay the proper amount — nothing more and nothing less.
It is not uncommon to underpay or overpay income tax, mostly down to the fact that it can be difficult to predict how much an employee will earn in a financial year.
The majority of employed people in New Zealand pay their taxes via the pay-as-you-earn (PAYE) model. This means tax is deducted from pay before it enters their bank accounts.
IRD looks at these payments at the end of the financial year to see if they have paid the right amount of tax, if they haven't paid enough tax and owe money, or whether they have overpaid taxes and require a refund.
Inland Revenue has been automatically calculating tax returns for those whose income comes from earning wages, salary, interest, dividends, or bank deposits or savings interest, since 2019.
Tax refunds — it's your money
As a PAYE worker, refunds usually occur if there has been a variation in income during the year. This can come down to a change in employment, extra hours worked, or time between employment periods where you did not earn.
For example, if a PAYE employee making $70,000 a year took six months off with unpaid leave, their employer will have deducted tax from each pay for the first six months based on this salary. Due to the unpaid time off, only $35,000 of that will have been earned, but six months worth of tax at the $70,000 level would have been paid.
New Zealand's progressive tax rate means tax rates rises as salaries increase, so the final amount of tax owed would be less than what has already been paid. As the employer took more tax than what was owed during the six months of employment, the balance is returned as a tax refund.
People employed with a secondary income in addition to regular salary are contacted by the IRD at the beginning of July each year for further information so that a tax assessment can be completed.
Those who are self-employed work generally with accountants to file a tax return.
Refunds are paid directly into the bank account that IRD has on file when the income tax assessment is processed. Most income tax assessments are sent between May 25 and June 7.
Each bank has its own process and money should appear in your account within a few days.
To speed up the process, you can check IRD has the right bank account information via the myIR website.
Tax bills — why, and how long have you got to pay?
Some New Zealanders may owe IRD money rather than receiving a tax refund.
Changes in income, using the wrong tax code, or using a prescribed investor rate on your KiwiSaver that is too low can cause this.
Tax bills are due by February 7 the year after receiving a bill, meaning those owing money will need to pay the IRD back by February 7, 2025.
Instalment arrangements to pay it off over time are possible, along with several other payment options.
Tax bills can be automatically written off in specific circumstances:
- If it's $50 or less
- If your income is from an income-tested benefit, education grant, superannuation or veteran's pension
- You have no more than $200 of other income
- You did not use a tailored tax code during the year
- You did not have a Working for Families entitlement at any point during the year.
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