It’s that time of year when a tax refund notice can arrive in your inbox and feel like free money, a few hundred dollars hitting your bank account from out of nowhere. But it’s really just IRD making sure you paid just the right amount of tax.
Overpaying or underpaying income tax is quite common, largely because it’s hard to predict exactly how much someone will earn over the course of a year.
Most workers in New Zealand pay taxes via the pay-as-you-earn (PAYE) model. This means tax is deducted from your pay before it enters your bank account.
Right now, Inland Revenue (IR) is reviewing earnings and tax records for the financial year which ended on March 31. At this time of year, they assess whether the correct amount of tax has been paid.
If you haven’t paid enough tax, you’ll receive a tax bill, but if you’ve overpaid your taxes, you’ll receive a tax refund.
Payback, not a payday
Refunds usually occur if there has been a variation in income during the year, which can come down to a change in employment, extra hours worked, or time between employment periods where you did not earn.
For example, if a PAYE employee making $70,000 a year took six months off with unpaid leave, their employer will have deducted tax from each pay for the first six months based on this salary. Due to the unpaid time off, only $35,000 of that will have been earned, but six months worth of tax at the $70,000 level would have been paid.
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New Zealand’s progressive tax rate means tax rates rises as salaries increase, so the final amount of tax owed would be less than what has already been paid. As the employer took more tax than what was owed during the six months of employment, the balance is returned as a tax refund.
Those employed with a secondary income on top of their regular salary would be contacted by IR at the beginning of July for further information so a tax assessment could be completed.
Self-employed people generally work with an accountant to file a tax return.
Refunds are paid directly into the bank account IR has on file when the income tax assessment is processed, with most being sent between May 25 and June 7.
Each bank has its own process and money should appear in your account in the next few days.
Tax bills – why, and how long have you got to pay?
Some Kiwis may owe IR money rather than receiving a tax refund.
Changes in income, the wrong tax code being used, or a low prescribed investor rate on your KiwiSaver can cause this to occur.
Tax bills are due by February 7 the year after a bill is received, meaning those owing money will need to settle their debts with IR by February 7, 2026.
Instalment arrangements to pay it off over time are possible
Tax bills can be automatically written off in specific circumstances:
- If it’s $50 or less
- If your income is from an income-tested benefit, education grant, superannuation or veteran’s pension
- You have no more than $200 of other income
- You did not use a tailored tax code during the year
- You did not have a Working for Families entitlement at any point during the year.
