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

5 thoughts on “Covid19 – Information from IRD re Tax Implications of the Wage Subsidy

  1. I have a question.

    I just started to work at the company as warehouse assistant for a week before lockdown (Aug 2021). The contract is stated “minimum work hours at least 30 hours” and pay $20 per hour work which is a minimum wage rate. However I worked from Monday to Friday from 9.30 am to 5.30pm which is 37.5 hours work.

    During the lockdown, I only get $582.50 total before tax (work hours + wage subsidy) from my employer less $17.48 (Kiwisaver employer contribution). This payment are made of $600 Wage Subsidy rate.

    Is that correct paid from the employer?

    1. Hi Jacky,

      A few things seem wrong here from what you have told us.

      1. An employer cannot change the conditions of your Employment Contract without discussing it with you AND your consent.
      2. It is a condition of the Covid Subsidy that an employer must attempt to pay you at least 80% of your normal pay, in order to qualify for the subsidy.
      3. The whole $600 subsidy must be paid to the employee. The employer cannot deduct, or take into account, any Employer contributions to Kiwisaver, these must be paid on top of the subsidy by the employer.

      A useful link for you with a number of headings, there is also a section on making a complaint if need be –https://www.employment.govt.nz/leave-and-holidays/other-types-of-leave/coronavirus-workplace/

      1. Hi Ryan

        Thank you for your prompt reply. Yeah, it is what i feel something’s wrong.

        For your note #2, 80% of my normal pay –
        So my normal working hours = 37.5 hrs per week x (80% of $20) = $600. Is it a correct way to calculate? So, it is what the employer should be paid.
        Let’s say , I worked for 22 hours total this week. So, my payslip will be shown:
        22 hrs x $20 = $440.00 plus
        Wages Subsidy = $142.50
        Total: $582.50

        For note #3, Yes you are right. I’ve received less than $600 before tax per week. It seems i got cheat off a small amount of $17.48. They used $17.48 from my wage subsidy money as for employer contributions to Kiwisaver. Well, I need to talk to my employer at first instance about why I’m not getting $600 per week before I can submit my complaint form to MSD.

        1. Based on your two points, the employer should pay a minimum of $600 (in this case it is made up of worked hours and subsidy contribution). Re point two, they cannot deduct Employer’s Kiwisaver from the Gross amount, especially as you are being paid the Minimum Rate.

          Always talk to your Employer first and point them to the information in the link we provided.

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