Fancy getting a tax credit worth up to $520 from the IRD?
Well, what if I told you, that if you are a middle-income earner earning a wage here in NZ you could very well do just that!
What am I talking about?
I’m talking about one of the most common yes most often overlooked tax credit in the NZ tax system:
The Independent Earner Tax Credits
Better known as IETC for short.
What are the IETCs?
The IETCs are very simply put, tax credits that the IRD gives to you at a rate of $10 for every week worked in the year. (that’s 52 weeks in a year – hence $520 worth of tax credits).
How do you qualify for an IETC?
Great question! To qualify for for the IETC, you need to meet the following criteria:
- Be a tax resident of NZ (duh)
- Your Gross Income from all sources (PAYE, self-employment, business income, investments etc) is between $24,000 and $48,000 a year
- You or your partner are NOT receiving any form of benefit, working for families tax credit, superannuation or pension (even from overseas)
It is important to note that the IETC eligibility is based on months in the year.
Let’s look at two examples:
Ricardo works as a self-employed plumber. In the financial year ending 31 March 2020 he made an annual income of $42,000. He has been working the whole year and has not been receiving any form of benefit whatsoever.
In Ricardo’s case, he is eligible for 12 months of the IETC, since he’s been working hard for 12 months straight.
Danny has just come off the benefit since his carpet-washing business really took off. In the financial year ending 31 March 2020, he made $30,000 from his business which he started drawing an income from in June 2019. But he was on the benefit at the start of the financial year in April and May 2019.
In Danny’s case, he is still eligible for the IETC, but only for 10 months, since for two months he was receiving a benefit from the government.
So there you have it! In most cases, if you are making between $24,000 and $48,000 a year you can qualify for IETCs! So you should apply for it!
How do you apply for IETCs?
Simple! Pick up the phone and call your accountant and tell them to sort it out. Any decent accountant in NZ will be able to do this for you.
Don’t have an accountant?
Well, remember how I taught you how to fill in your self-employment tax returns? There is a paragraph there which talks about applying for IETC through My IR. Go back and read it line by line!
If you are 100% on a PAYE salary (IE no self-employed/side income). IRD will automatically calculate your IETC for you – so you need not worry about applying for it yourself.
Now the maximum credits you can get from IETC is $520. The IRD has a funny rule where every dollar earned above $44,000 reduces the tax credit by 13 cents (heck if I know why) – which means that you could end up with less than $520 if your income is between $44,000 and $48,000.
If you haven’t applied for your IETC yet, get on and do it! That’s almost $520 worth of your money waiting to come back to you!
For more information, check out the IRD page on IETC here.