There has been a lot of noise lately in the media about people receiving unexpected tax bills. One of the reasons is where the employee has ended up with a 53-week scenario. The 53-week scenario can happen depending on the day of the week your employee is paid. Pays for employees that are processed monthly and some fortnights could also fall into this category.
Why some PAYE years have 53 weeks.
- A year has 365 days (366 days for leap years)
- There are 52 weeks in a year
- Each week has 7 days
- 52 weeks multiplied by 7 days is 364. So we are 'missing' a day (or two days every leap year)
In summary, there are 52 weeks and 1 day in a 365 day year.
In the last financial year, from 1st April 2020 till 31st March 2021, there were 53 Wednesdays, so if you paid your employees every Wednesday, they would be expecting 53 payments.
- The additional weeks' pay makes up for the 'missing day.'
IRD issues automated tax assessments based on the information they have received during the tax year for those with a predictable income. Income tax assessments are sent between late May until the end of July. There are some complex rules IRD applies when an extra week is paid, which means the employee ends up with a tax bill.
The good news is that IRD will write off the full amount of the tax bill when it relates only to the extra pay. If any of the following is applicable for the employee, they should contact the IRD.
- Tailored tax code
- used an unsuitable tax code for PAYE
- had tax deducted at a rate lower than the correct rate on schedular payments, an extra pay, or secondary employment income
- had tax deducted at a rate lower than the correct rate on investment income that has RWT deducted
- had annual income over $48,000 and received a Māori authority distribution, income from election day work on an EDW tax code or as a casual agricultural employee on a CAE tax code
- had untaxed employee share benefit scheme income.
- had received working from families entitlement
Hopefully, IRD will look into the rules they apply to tax assessments with the 53-week scenario in the future. No doubt this has caused extra work for Employers fielding questions from their employees.
You can find more information about automatic tax write-offs on the IRD website.