This is the time of year when many of us receive a bonus or, conversely, when we close down for several weeks – either way, change from a normal routine or income can affect the tax you pay – and therefore, can lead to unknown debt.
When you get a lump sum payment or “extra pay”, it can affect the amount of tax you pay. It can also affect your ACC, KiwiSaver and student loan repayments and may affect your entitlements.
Lump sum payments (“extra pay”) include:
- back pay
- back-paid holiday pay
- lump sum holiday pay
- annual or special bonuses
- cashed-in annual leave
- retiring or redundancy payments
- payments for accepting restrictive covenants
- exit inducement payments
- employee share schemes benefits
If you know you’re getting a lump sum payment, talk to your employer to make sure they’re going to deduct enough tax and ACC. You can ask them to deduct more tax if you think you might end up with a debt at the end of the year.
Your employer has to deduct student loan repayments from your lump sum. Check with your employer to make sure they have made a deduction, and with any old employers if you’re owed lump sums from them.
If student loan repayments aren’t taken out you may get a Personal Tax Summary (PTS) at the end of the year showing you need to make a student loan repayment.
Your employer should deduct KiwiSaver from your lump sum payment. Any old employers who are paying you a lump sum need to take KiwiSaver out too. You’ll also be entitled to employer contributions.
At the end of the year
If you haven’t had the right amounts deducted IRD generally send you a Personal Tax Summary (PTS). The PTS will tell you what’s been underpaid and how much you have to pay. If you receive Working for Families Tax Credits, you’ll a get a PTS anyway.
If you don’t receive a PTS you can still log in to myIR. Click “Money back?”and use the calculator to work out if you’ve paid the right amounts.
If you haven’t followed these tips previously and it turns out there is a shortfall – call Tax Debt Management to get it sorted.
Happy Holidays to all.