Covid19 – Information from IRD re Tax Implications of the Wage Subsidy

Your COVID-19 questions

Please ensure you keep up to date with clarification about the changes we are implementing to respond to the COVID-19 event please review all information here  Large employers with questions about accessing the wage subsidy should visit: https://www.workandincome.govt.nz/products/a-z-benefits/covid-19-largeemployers.html

Wage and Leave Subsidies  

Inland Revenue would strongly encourage employers to pass the wage subsidy amount (which is for a 12-week period) to the employee as per their normal pay cycle.

For example:  If the employee is normally paid weekly, the intention of the wage subsidy scheme is that the employee receives 1/12th of the wage subsidy lump sum each week for 12 weeks as part of their weekly pay, in addition to any potential top up from the employer each week.

Some employers may choose to share the wage subsidy as a 12-week lump sum straight away to their employees. This has significant potential to have downstream tax and social policy implications for an employee.

Are there any tax consequences if an employer pays the 12-week wage subsidy as a single lump-sum to their employees?

  • For employers – no, the receipt of the subsidy is exempt income and the payment to an employee is not deductible, so it doesn’t make any difference if they pass it on now, or over time.
  • For employees – the intention is the subsidy amount is passed to the employee as per their normal pay cycle

What are the tax consequences for employees?

  • Paying the 12-week subsidy to an employee as a lump sum brings up to 12 weeks of income, that would normally be earned in the next tax year, into this tax year (which ends on 31 March 2020).
  • The additional income could move them into a higher marginal tax bracket and result in them receiving a tax bill when Inland Revenue completes the automatic assessment process later this year;
  • If, as a result of receiving the additional income, their total gross income for the year exceeds $48,000 they will no longer qualify for the Independent Earner Tax Credit;
  • It may also impact their Working for Families Tax Credits, Child Support, Paid Parental Leave entitlements or they may receive a Student Loan bill

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