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My employee received a tax bill for the last financial year. I know I have them on the right tax code and am sure Ace Payroll is right. Is it possible to do everything right each pay, but still have a tax bill or tax refund at the end of the year?
Yes, under New Zealand's current tax system it is almost inevitable there will be a tax bill or refund at the end of each financial year.
New Zealand does not have a flat tax system; the more we earn, the greater the percentage of tax payable.
If we had a flat tax system every dollar earnt would be taxed at the same rate, meaning an annual square up would never be required.
This is not how New Zealand's system works.
Each pay period you are taxed on the basis that what you earn in that pay period is what you earn every pay period.
The tax system assumes people earn exactly the same amount every pay.
As a result, a large number of employees will either have a tax bill, or tax refund, at the end of the year.
This is why you hear so much about tax refund services!!
As a general rule, people in these categories could receive a tax bill
As a general rule, people in these categories could receive a refund
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At the start of each financial year Ace Payroll receives a number of calls from clients unsure whether the tax is correctly calculated by the program. Here is a simple checklist.
Prior to advising please check the following
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For monthly salaries, why is there a small discrepancy between the IRD printed tax tables, and the figures calculated by Ace Payroll?
This is the issue raised by our client
When comparing the Payroll specifications calculations with our paper-based PAYE tax tables you will find a small variance, when the earnings of the employee are in between the value shown in the paper PAYE tax tables. We advise employers using manual payrolls that where the exact amount of earnings is not shown in the table to use the nearest lower gross value.
As the monthly tax tables gross earnings are in $5 increments using your example an employer using a manual payroll would deduct PAYE on $4,120 ($980.37).
The formulas used in our Payroll specification are more accurate and should be used by all employers using a computer software payroll package.
I confirm the calculation you have shown is correct when using a computer software payroll package.