Many people on paid parental leave are being hit with an unanticipated tax bill this year. Photo: Supplied
Many people are being stung with surprise tax bills of thousands of dollars - with employees on parental leave among the hardest hit.
Since 2019, Inland Revenue has sent out automated income tax assessments to New Zealanders on a wage or salary.
Generally, the calculations are accurate. However, if someone's circumstances change during a financial year, there might be a refund or an amount owing.
Natasha, a primary teacher, told First Up she had a tax bill of $2300.
"I've worked at the same school for eight years. I've never had to pay tax, ever."
She is on maternity leave, and was looking forward to a Christmas holiday with family in the United Kingdom.
"We've saved pretty hard to be able to do that, and (I'm on) paid parental leave... and now I've got a $2300 tax bill that I didn't even know that I would have."
Natasha is not alone. She has heard from multiple people who have high amounts to pay Inland Revenue, many of whom are also on paid parental leave.
"I have another friend who I work with, it's about the same, around the $2000 mark, another girl in my antenatal (group) who's like $1800.
"So it's a lot of people in in the same position. It just seems like such a burden for people that are down to one income having to go back to work, maybe earlier, to have to pay this off.
"We're not in a fortunate position to be able to just be like 'oh yeah $2300, that's sweet'."
The rising cost of living meant people were doing it tough, and a lot of people were "super stressed" about their tax bills, she said.
Natasha thought part of the problem for many people like her was that they received a holiday pay payout, or the teacher union's maternity grant, on the wrong tax code.
A colleague in the same situation told her it was a matter of being on the secondary tax code instead of the M code.
"She said a maternity grant shouldn't be available to leave families up shit creek without a paddle, and it currently does. So you expect that you're getting that maternity grant with your six weeks (paid parental leave), which is great, but you shouldn't then at the end of it have to pay so much tax," Natasha told First Up.
Enable Me financial advisor Nadine Higgins is also currently on maternity leave, and has heard from several people caught by surprise by their income tax assessments.
Another mother on leave from working in a corporate role told her she owed $3300.
"The key thing that seems to have tripped people up is that they are receiving a second form of income at the same time as paid parental leave," she said.
"So technically it means that one of your streams of income needs to be on a secondary tax code. And not only that, it needs to be on the right secondary tax code.
"So for teachers it seems to be that if they're paid out their holiday pay, which of course they've earned during the year, but if they're paid out that holiday pay when they're on paid parental leave, technically, that's two streams of income. And so that's how they're ending up with the bill."
Higgins said a tax bill could be affected by what time of year people went on parental leave.
"My understanding of it is if you are going on paid parental leave and getting those paid parental leave payments over the summer and you don't pick the secondary tax code for one of those streams of income, they're the people who are going to get the larger bills because there's more money coming in from a second source concurrently to getting paid."
She said not only was it important for people to get their tax codes right, but they could also opt to receive paid parental leave after other income, so they were not getting payments concurrently and paying the secondary tax.
Deloitte partner and tax expert Robyn Walker told First Up another reason for a tax bill this year could be due to an extra payday.
She said if someone was paid weekly, their payday might fall 53 times in a financial year, instead of the usual 52.
"So what actually happens is that PAYE is all calculated on the assumption that you earn the same amount every payday. It multiplies it up by 52 ff you're paid weekly, 26 if you're paid fortnightly.
"It works out the tax and then divides it back and decides that's the amount of pay that should be deducted each payday. If there's 53 paydays, then actually you're being paid more, you're earning more than what the calculations are expecting, and so you end up in the tax to pay scenario."
She said there were some circumstances where Inland Revenue could write off tax that was owing - but there were strict limitations.
"If a taxpayer has a tax bill to pay and it's caused solely by the extra pay issue, then IRD will write off that additional tax so the taxpayer isn't any worse off, because obviously as far as everybody was concerned, tax was being deducted correctly."
An individual could qualify for a tax write-off if the amount of tax payable was no more than $50, if it was derived solely from certain income-tested benefits, or if it was derived solely from an extra pay period.
In a statement, Inland Revenue said it would not have a full picture of how many New Zealanders on salaries had tax owing until late July, when all income tax assessments had been processed.
But if people had big bills that would be a struggle to pay, Robyn Walker recommended getting in touch with Inland Revenue to look at paying it off in installments.
She also recommended people make sure their tax codes were correct for the resident withholding tax that they paid on interest earned from bank savings, as well as making sure their prescribed investor rate was correct for investment portfolios like KiwiSaver.