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Tax Calculation Bills & Refunds

Tax bills and refunds - why we have these at the end of the year   Tax calculation checklist - what to check if you think the tax is calculated incorrectly   Monthly printed tax tables - the reason for small discrepancies

Tax Bills & Refunds

My employee received a tax bill for the last financial year. I know I have them on the right tax code and am sure Ace Payroll is right. Is it possible to do everything right each pay, but still have a tax bill or tax refund at the end of the year? Yes, under New Zealand's current tax system it is almost inevitable there will be a tax bill or refund at the end of each financial year. New Zealand does not have a flat tax system; the more we earn, the greater the percentage of tax payable. If we had a flat tax system every dollar earnt would be taxed at the same rate, meaning an annual square up would never be required. This is not how New Zealand's system works. Each pay period you are taxed on the basis that what you earn in that pay period is what you earn every pay period. The tax system assumes people earn exactly the same amount every pay. As a result, a large number of employees will either have a tax bill, or tax refund, at the end of the year. This is why you hear so much about tax refund services!! As a general rule, people in these categories could receive a tax bill People who had a pay increase during the year. People who did lots of overtime. People who got a bonus, commission, redundancy payment etc. People who were paid out a lump sum of holiday pay. People who worked for multiple employers at different rates. People where, because of how dates fell, had 27 fortnighly or 53 weekly pay periods. People who went from a low paying job to a high paying job. Years in which tax rates increase part way through the year. As a general rule, people in these categories could receive a refund People who had weeks where they worked fewer hours. People who had a pay cut. People who took some maternity leave or paid parental leave. People who were unemployed for part of the year. People who were students for part of the year. People who work part time for various employers. People who took some leave without pay. People who job shared for part of the year. People who were in jail for part of the year. People who went from a high paying job to a low paying job. Years in which tax rates are reduced part way through the year.

Tax Calculation Checklist

At the start of each financial year Ace Payroll receives a number of calls from clients unsure whether the tax is correctly calculated by the program. Here is a simple checklist. Prior to advising please check the following You are using an up to date version of Ace Payroll - currently 3.37A or later. Check the pay date is after 1st October 2010. Ensure you are referring to the correct printed tax tables, and not the previous years. The date is printed on the front cover. Remember to round the gross down to the nearest lower figure in the printed tax tables. If the weekly gross is $350.99 you calculate tax on $350. If comparing the tax deducted from the pay calculation screen in Ace Payroll, check the tax deduction is shown in black. If blue, then you have typed in the tax from the keyboard. If your deduction is still incorrect after checking all the above, feel free to call the help desk.

Monthly Printed Tax Table Discrepancies

For monthly salaries, why is there a small discrepancy between the IRD printed tax tables, and the figures calculated by Ace Payroll? This is the issue raised by our client Their employees are paid Monthly and on the M code. As an example, one earns $4,121 gross per month. Ace Payroll taxes this at $981.84, and the tax calculator on the IRD website also says $981.84. The IRD Monthly Printed Tables show a lower amount. IRD Response When comparing the Payroll specifications calculations with our paper-based PAYE tax tables you will find a small variance, when the earnings of the employee are in between the value shown in the paper PAYE tax tables. We advise employers using manual payrolls that where the exact amount of earnings is not shown in the table to use the nearest lower gross value. As the monthly tax tables gross earnings are in $5 increments using your example an employer using a manual payroll would deduct PAYE on $4,120 ($980.37). The formulas used in our Payroll specification are more accurate and should be used by all employers using a computer software payroll package. I confirm the calculation you have shown is correct when using a computer software payroll package. Note: This answer was written by the IRD on 26th April 2004, and the answer is current as at 5th January 2010.

More On Tax Codes and Rates   Tax Bills & Refunds   Student loan voluntary repayments   Handling of GST increase in Ace Payroll   Student loan special tax codes   Tax Changes on 1st October 2010   Tax rates are wrong   Tax Code Entry   Deduct withholding tax at 0%   Monthly printed tax table discrepancies   Deduct tax at a specified percentage   Taxing of holiday pay   Payroll software IRD compliance   Overwriting PAYE deductions   Twice monthly PAYE returns   Overwriting default PAYE & student loan   Tax cuts in terms everyone can understand   Tax Code entry     Alphabetical Index FAQ Questions FAQ Contents

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Updated: 6th August 2010 Published: 5th August 2010