Why you might have had tax written off that you didn't know about

A recent issue has arisen with up to half a million taxpayers having their tax bills written off unexpectedly. This has occurred because of additional paydays, which may have gone unnoticed by many. The Inland Revenue has written off up to $420 of tax for those paid fortnightly and $250 for those paid weekly, if it is owed solely due to a calendar quirk.

However, individuals with other sources of income not correctly taxed or those who receive Working for Families benefits, or have a tailored or incorrect tax code when they change employers, do not qualify for the write-off.

An Official Information Act request reveals that in the year leading up to March 2019, 510,500 people had $37.4 million of tax written off due to this issue. The previous year, 58,100 people experienced $6.4 million in tax write-offs. The problem stems from the PAYE tax system taking deductions assuming there are 52 paydays, or 26 for those paid fortnightly.

However, depending on the alignment of dates, individuals can receive 53 or 27 paydays. In 2020, this was particularly noticeable due to the leap year, with people paid on Mondays and Tuesdays receiving an extra pay.

Deloitte tax partner Robyn Walker noted that the issue arises from PAYE tax being calculated based on a standard of 52 paydays. In years with 53 Tuesdays, Wednesdays, or Thursdays, more people are affected. Public sector employees, many of whom are paid on Tuesdays, are more susceptible to this issue. Walker suggested that there may not be a better solution to manage this situation.

However, she advised that, similar to predicting leap year occurrences, taxpayers should remain vigilant in March 2032, as the upcoming leap year could result in a higher number of tax write-offs.