07 Feb Working For Families Tax Credits
Working for Families tax credits are paid to low and middle-income families to help them raise their family and stay in work. Around 58 percent of families with children in New Zealand get Working for Families each year. Working for Families is mostly paid by Inland Revenue, while the Ministry of Social Development pays it to some families who also get a main benefit.
Working for Families is made up of four tax credits. Families may get one or more kind of credit. If you are self employed or operating as a company, your WFFTC entitlement can be affected.
Family Tax Credit
Family Tax Credit is the main payment to support families with the costs of children. Families getting a main benefit and low to middle-income working families can both get it.
- It pays $127.73 a week for the eldest child and $104.08 a week for every other child in a family.
- Family Tax Credit payments depend on your income and begin to reduce once a family’s income is higher than $42,700 a year. For every dollar of income above this amount, Family Tax Credit payments reduce by 27 cents.
Family Tax Credit is paid to 280,100 low and middle-income families.
In-Work Tax Credit
This is paid to families who are working to help them with raising a family and to help make sure families are better off working than if they were not working.
- It pays $72.50 a week for families with 1 to 3 children (with an extra $15 a week for each fourth and following child).
- In-Work Tax Credit payments depend on your income and begin to reduce once a family’s Family Tax Credit payments have reduced to zero. In-Work Tax Credit payments also reduce at the same rate of 27 cents for every dollar of income.
In-Work Tax Credit is paid to 188,500 families in work.
Minimum Family Tax Credit
The Minimum Family Tax Credit is an additional top-up for low-income working families with children, and makes sure their income is at least $632 a week after tax. This is paid to families who are working and do not get a main benefit. As it is a top-up to a certain level of income, when a family’s income increases by a dollar the Minimum Family Tax Credit reduces by a dollar.
Minimum Family Tax Credit is paid to 3,900 low-income working families.
Best Start Tax Credit
The Best Start Tax Credit pays $65.15 a week to all families for the first year of each child’s life. You cannot get Best Start and Paid Parental Leave for the same child at the same time.
Generally, a family’s Best Start payments for a child starts once any Paid Parental Leave finishes. For families with children aged 1 and 2 years Best Start depends on your income, with payments starting to reduce once a family’s income is higher than $79,000 a year. For every dollar of income above this amount, Best Start payments reduce by 21 cents.
Inland Revenue pays Best Start Tax Credit to 74,000 families and MSD pays Best Start to some families receiving a main benefit.
Read further information about Working for Families tax credits on the IRD website
If you are self employed or operating as a company, your WFFTC entitlement can be affected.
While a personal on a fixed income can estimate their WFFTC’s reasonably accurately it is more difficult for a family operating a business as profitability will fluctuate during the year. For this reason we advise clients in business that wherever possible they should claim WFFTC’s as an annual lump sum once their financial accounts and tax returns are finalised.
However we do realise that this is not always possible and if payments are required throughout the year we recommend that these be kept to a minimum to minimise any payback that may occur if your end of year profitability means your entitlement is less than estimated.
What income could affect your eligibility as a business owner?*
People with business should be aware that the following income sources can & will affect their WFFTC’s:
- Family Trust profits not allocated as beneficiary income.
- The value of attributable Fringe Benefits to Shareholder Employees.
- Some pensions and annuities from life insurance policies.
- Passive income of your children.
- Income from a non-resident spouse or partner.
- Non-Portfolio Investment Entity (PIE) income.
- Payment from other people used for your families day to day expenses.
- Income Equalisation Scheme deposits or refunds.
- Specific Employer Superannuation scheme distributions.
- Retirement savings scheme distributions.
- Investment Income
- Tax exempt income and overseas pensions.
- Depreciation recovered on sale of buildings used in business or rental Income spread into this income year.
- Net profit from any company you own in relation to your shareholding
- An some other sources.
There are so many different aspects to what can affect your eligibility as a business owner, and you are the one who knows your financial situation the best. This means that we no longer complete WFFTC forms, but we are always available to field any general questions you might have around your financial situation and income sources.
*The above list is a general guide only to illustrate that factors of your business can affect your eligibility to WFFTC’s.
**The above information is of a general nature and has been written to provide basic information only. Borrie Financial Group Ltd and it’s employees take no responsibility for the current accuracy of the information.
Our ‘Working for Families Tax Credit’ not enough?
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Guide to Your Financial Reports – Part 5 (Statement of Changes in Equity)
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Quick Six – Management Reporting System Benefits
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