Working for Families Tax Credits

Oct 26, 2012 | Categories: New Zealand , Taxation

IMPORTANT: This post is specific to New Zealand. If you are not a New Zealand business/taxpayer then it is probably not applicable to you.

If you have a family then you may be entitled to Working For Families Tax Credits (WFF). WFF is effectively a tax rebate scheme. Many countries give you deductions or a tax-free threshold for having kids which you claim on your annual tax return. Because NZ has a fairly flat tax system we don’t do this, but we make up for it through WFF Tax Credits which effectively gives families a refund of income tax paid. In some cases, you can actually get back more than you paid in tax. The income thresholds are in fact pretty high – and many people could be entitled to WFF but haven’t applied.
The IRD Website has a good section on Working For Families including a tool for estimating your entitlement, and application forms. The formula is quite complicated as it depends on a number of actors including the number of eligible children, your income (known as “Family Scheme Income”), and the number of hours you and your partner work. Here are the maximum income points (the lower your income the more you receive – this chart only tells you when you cease to be eligible, for the 2011/12 tax year):

1 child – max income = $74,000
2 children – max income = $90,500
3 children – max income = $107,000
4+ children – max income = $120,500 (or higher, depending on various factors)

The rules for calculating income for WFF have changed in recent years. Again, it’s quite complicated. The following is a brief list of some of the income types that are included in the WFF eligibility calculation:

wages, salaries, commission, tips
investment income, including income from a Portfolio Investment Entity (PIE) that is not reported on your tax return
self-employed income
business income retained in a company that you control (even if you have not distributed it)
income earned by a Trust that you are a party to or distributions received from a Trust, even if not taxable (this is where it can get complicated)
fringe benefits provided by your employer
gifts or other payments received to support your family, even if not taxable, if these are more than $5,000 per yer

As you can see, it’s complicated – especially for business owners. WFF is always paid in advance – the money you receive each week is considered an advance against your annual entitlement. Business owners are required to estimate their ANNUAL income, and IRD will pay weekly. But if you under-estimate your income you may be overpaid, and not only will you end up owing back the overpaid WFF money, but you will end up with punitive interest charges as well. Therefore we recommend that you OVERSTATE your income when working out your WFF entitlement to ensure that you don’t over-claim. If your income rises during the year you should contact the IRD and re-asses your entitlement to avoid over-receipt of WFF.