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21 Jun 2018
The vast majority of the working population are on wages and have PAYE deducted at source by their employers. They assume that their employer will deduct tax at the correct rate and therefore they do not owe any tax and haven’t paid too much.
However, the way the IRD tells employers to deduct tax assumes that the employee will earn exactly the same amount of money each pay period (whether that be weekly or fortnightly). Therefore if you earn an irregular amount of income each week, perhaps get a one off bonus, or just do not work for the full tax year, it is likely you have paid too much tax.
For calculating your tax on a weekly basis the annual rates are simply divided by 52. The first $269.23 is taxed at 10.5%, the next $653.84 taxed at 17.5%, next $423.08 at 30% and anything over that is at 33%.
Let’s say John Smith is paid a salary of $39,000 or $750 per week. Each week the first $269.23 is taxed at 10.5% and the balance of $480.77 will be taxed at 17.5%.
At Christmas his employer is extremely generous and pays John a bonus of $9,000, on top of his usual $750 wages. John will probably be taxed on the first $269.23 at 10.5%, the next $653.84 at 17.5%, $423.08 at 30% and the balance of $8,403.85 at 33%.
However as John’s annual income is $48,000, the whole of the bonus should have only be taxed ay 17.5%. This means John has overpaid tax by $1,350.
It is possible that switched-on employers may tax bonuses separately as an extra emoluent at the correct rate of tax.
The question is how do I get my tax back? You could use an accountant to help, but if you only have PAYE income, you really don’t need us. You could use one of the various tax refund companies that seem to outdo themselves with how annoying their jingles or adverts can become. Both of these options cost you money.
But why should it cost you money when your employer has deducted more money from you than the IRD was entitled to. The simple answer is that it doesn’t need to cost you a dollar. Assuming you only have employment income, you can ring up IRD on a freephone number and request a Personal Tax Summary (PTS). This will show whether you have paid too much tax and if so, once you accept the personal tax summary, the IRD refund the money direct to you bank account for no charge.
Just be careful, if you have previously used a tax refund company, and have not updated your bank account with the IRD, this is where the IRD wiill send any tax refunds. So update your bank acocunt with the IRD before requesting the PTS.
It is possible that you may owe the IRD. This may occur where your have changed employers during the year, had multiple jobs at the same time. If you owe the IRD, they would send you a PTS anyway, so you are no worse off requesting one.
In today’s technological age there is a link on the front page of the IRD’s homepage www.ird.govt.nz , to check whether you have overpaid tax. It’s a simple three step approach that takes less than 5 miniutes to complete. If you are due a refund, it should arrive within 3 or 4 weeks. But as noted above please make sure the IRD have your correct bank account number.
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