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30,000 families told to repay nearly $20 million in overpaid Working for Families tax credits


Nearly 30,000 low income families have been told they must repay almost $20 million of In Work Tax Credits they were not entitled, according to Inland Revenue documents.

Beneficiary advocate Karen Pattie said the tax department expected the money to be paid back by February and April, putting pressure on low-income family finances.

“It is absolutely horrendous,” Pattie said.

The tax credits are available to families with dependent children under 18 years, and are part of the Working for Families benefit scheme.

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Nearly 39,000 recipients were overpaid the tax credit worth $27.4m, as at October 27.

But 9775 had a credit in another component of the Working for Families scheme, which the department used to recover the overpaid tax credit.

The remaining 29,206 recipients were overpaid nearly $23.8m, of which $19.9m remained outstanding and was due for repayment by either February 7 or April 7.

Inland Revenue (IRD) New Zealand / YouTube

Changes designed to simplify the tax system resulted in an extra workload for the department last year. (First published January 2020)

Sue Gillies, IR families customer segment lead, said the amount owed did not include people who had been given a time extension to file their IR3 income tax returns, or a partner’s outstanding income tax return.

Krystle, who did not want to use her last name out of fear of not receiving any further support from IR, received $2043.51 in tax credits last year between July and October, after resigning from her job while on parental leave and her husband was the sole earner.

She stopped receiving the tax credit after finding paid employment, but in July this year was told by the department she had been overpaid the full amount of the credit.

“They said I had underestimated my income, because when they did another estimation later, our income was much higher,” she said.

Her income tax refund was $1239.39, which the department used to cover part of the overpayment, leaving $804.13 owing.

“That full amount I had to pay back is what they paid me. So what they’re saying is I wouldn’t have been eligible for the assistance,” she said.

“The way IR carry out their assessment almost guarantees that people will be overpaid.”

Nearly 39,000 recipients were overpaid the In Work Tax Credit (IWTC) in the 2021 financial year.

Stuff

Nearly 39,000 recipients were overpaid the In Work Tax Credit (IWTC) in the 2021 financial year.

The multibillion-dollar scheme, established in 2004, supports about 350,000 families.

The tax credit is available to families who have some income from paid work each week.

Gillies said that at the beginning of each financial year, IR estimated recipients’ Working for Families entitlements for the year based on the information the department was given.

If there were changes to a family’s circumstances during that year, it would affect their entitlement, she said.

“For example, a change in job or salary, relationship status changes or a child entering or leaving care,” Gillies said.

IR adjusts the assessment as soon as it became aware of changes, with a final end of year assessment completed to calculate if the recipient had received the right amount, Gillies said.

If Working for Families had been overpaid, the recipient received a bill for that amount, she said.

The In Work Tax Credit is “a really poorly designed work incentive,” Susan St John says.

Supplied

The In Work Tax Credit is “a really poorly designed work incentive,” Susan St John says.

The tax credit previously had a minimum number of hours worked to meet the entitlement conditions, she said.

But the requirement was removed in July, and theamount overpaid was expected to reduce over the next few years, she said.

Susan St John, Child Poverty Action Group spokeswoman and economics associate professor at University of Auckland , said the overpayment was a result “of the craziness of the design of this credit”, and the whole Working for Families system needed to be changed.

“What we’ve tried to do in New Zealand is use a child tax credit that’s designed to alleviate poverty to also incentivise work,” St John said.

“It’s a really poorly designed work incentive.”

She said a system similar to Australia’s, where all low income families were treated the same, should be considered.

“The central issue is, what Working for Families is all about is lost. And this illustrates this perfectly.

“It should be about the child,” St John said.

Senior manager and advocate at Beneficiaries Advocacy and Information Services Karen Pattie said there was immense pressure on families to repay their debt by February or April.

“They get penalties on it and the penalties are quite harsh,” Pattie said.

It was up to the recipient to contact IR when they changed jobs, or had any income changes, and estimate how much they would earn by the end of the financial year, she said.

But it is “very easy” to make the mistake of underestimating yearly earnings, especially if the recipient worked a lot of overtime, she said.

“There is no leeway with IRD on these things, which is really hard on families,” Pattie said.

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