Nearly 30,000 low-income families have been told they owe nearly $ 20 million in work tax credits to which they are not entitled, according to Inland Revenue documents.
Advocate for beneficiaries, Karen Pattie, said the tax department expected the money to be paid back by February and April, which would put a strain on the finances of low-income families.
“It’s absolutely horrible,” Pattie said.
Tax credits are available for families with dependent children under the age of 18 and are part of the Working for Families benefit plan.
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Nearly 39,000 beneficiaries were overpaid the tax credit worth $ 27.4 million, as of October 27.
But 9775 had a credit in another component of the Working for Families program, which the department used to recover the overpaid tax credit.
The remaining 29,206 beneficiaries were overpaid nearly $ 23.8 million, of which $ 19.9 million remained unpaid and was due to be repaid on February 7 or April 7.
Inland Revenue (IRD) New Zealand / YouTube
Changes to simplify the tax system put additional workload on the department last year. (First published in January 2020)
Sue Gillies, IR Families Client Segment Manager, said the amount owed did not include people who have been given extra time to file their IR3 tax returns, or an overdue income tax return. partner.
Krystle, who did not want to use his last name for fear of no longer receiving help from the IR, received $ 2,043.51 in tax credits last year between July and October, after resigning from his job. employment while on parental leave and her husband was the only employee.
She stopped receiving the tax credit after finding paid employment, but in July of this year the ministry told her that she had overpaid the full amount of the credit.
“They said I underestimated my income because when they did another estimate later our income was much higher,” she said.
Her income tax refund was $ 1,239.39, which the department used to cover part of the overpayment, leaving $ 804.13 to be paid.
“The total amount I had to pay back is what they paid me. So what they are saying is that I would not have qualified for the aid, ”she said.
“The way IRs do their assessment almost guarantees that people will be overpaid. “
The multibillion-dollar program, created in 2004, supports approximately 350,000 families.
The tax credit is available for families who have income from paid work each week.
Gillies said that at the start of each fiscal year, the IR estimated the entitlements of Working for Families beneficiaries for the year based on information provided to the ministry.
If there were any changes in a family’s circumstances during this year, it would affect their rights, she said.
“For example, a change in job or salary, a change in relationship status or a child entering or leaving care,” said Gillies.
IR adjusts the appraisal as soon as it becomes aware of the changes, with a final year-end appraisal performed to calculate whether the beneficiary received the correct amount, Gillies said.
If Working for Families was overpaid, the beneficiary would receive an invoice for that amount, she said.
The tax credit previously provided for a minimum number of hours worked to meet eligibility requirements, she said.
But the requirement was removed in July, and the amount overpaid is expected to decrease over the next few years, she said.
Susan St John, spokesperson for the Child Poverty Action Group and associate professor of economics at the University of Auckland, said the overpayment was the result of “the design madness of this credit”, and that the whole Working for Families system had to be changed.
“What we have tried to do in New Zealand is use a child tax credit designed to reduce poverty to encourage work as well,” said St John.
“It’s a really poorly designed work incentive. “
She said a system similar to Australia’s, where all low-income families are treated the same, should be considered.
“The central question is that what Working for Families is is lost. And that perfectly illustrates that.
“It should be about the child,” St John said.
Karen Pattie, senior director and lawyer for advocacy and beneficiary information services, said there was immense pressure on families to pay off their debt by February or April.
“They get penalties and the penalties are pretty severe,” Pattie said.
It was up to the beneficiary to contact IR when they changed jobs or income changes, and estimate how much they would earn by year-end, she said.
But it’s “very easy” to make the mistake of underestimating annual earnings, especially if the recipient has been working a lot of overtime, she said.
“There’s no wiggle room with the IRD on these things, which is really tough for families,” Pattie said.