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What is the Independent Earner Tax Credit (IETC) ?

More people are being urged to sign up to KiwiSaver in a bid to help strengthen the economy.

The Independent Earner Tax Credit (IETC) is a tax credit available to individuals who meet all of the following conditions;

  • you're an individual who is a New Zealand tax resident, and

  • your annual income is between $24,000 and $48,000, and

  • you or your partner :

   aren't entitled to working for families tax credits, and

   don't receive an overseas equivalent of working for families tax credits, and

  • you aren't receiving:

   an income-tested benefit

   NZ Super

   Veteran's Pension, or

   an overseas equivalent of the above.

In addition to these conditions, the tax credit is determined monthly. You must meet the criteria for each whole month. For example, if you became entitled to and received NZ Super in mid February, you would only be eligible for 10 months (April to January) if you met all of the other criteria. Also note that there are categories for overseas equivalent benefits which may rule out many who receive overseas pensions.

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The reason why IRD doesn’t automatically calculate this tax credit is because they don’t always know whether all of the above criteria are met or the number of complete months. The closest that there is an automatic calculation is where an employee on salary/wages gives their employer a Tax Code Declaration (IR330 form) which ends up in a ME or MESL code. If this is the case then the IETC will automatically be calculated in your regular tax deductions from your pay.

The maximum amount of the credit is $520 for annual income between $24,000 and $44,000. Between $44,001 and $48,000 the $520 reduces by 13 cents for every dollar earned over $44,000. So someone on $47,999 will only be entitled to a maximum of 13 cents, someone on $46,000 will be entitled to a maximum of $260, and someone on $27,000 will be entitled to a maximum of $520.

From last week’s topic on who needs to file an income tax return, the IETC may cause many to get refunds, especially employees that were on higher tax codes. Beware though because if your income has increased over $48,000 then you should no longer be using the ME or MESL tax codes and should fill out a new tax code form. Once again, the only real way of knowing whether you have paid too much tax, the right amount, or not enough, is to calculate your tax return. See last week’s topic as to how to do this. And the final word as ever is – if you are unsure you should get professional advice before submitting a tax return.

Submit your tax questions.

Disclaimer:

Any views the writer has expressed are his own and not necessarily those of Accountants On Elliott LP. The information supplied has been written in general terms only. This information should not be relied upon specifically without also obtaining appropriate professional advice after detailed examination of your particular situation.