Here we explain how to treat the COVID-19 Short-Term Absence Payment when it comes to your taxes.
GST
Employers and self-employed workers do not have to pay GST on the Short-Term Absence Payment.
Income tax
Employers
The amount of the Short-Term Absence Payment you pass on to your employee is “excluded income” for income tax. This means you:
- do not pay income tax on, and
- cannot claim a deduction on
the amount passed on to the employee. Income tax is paid by the employee on the amount they received on their income tax assessment or return.
Any amount you do not pass on to the employee is considered income. This means you need to include it in your income tax return and pay tax on it.
Self-employed workers
You need to pay income tax on the Short-Term Absence Payment as it replaces a loss of earnings. Include the amount you get in your Individual income tax return – IR3 in the “Government Subsidies” field.
PAYE deductions
The Short-Term Absence Payment is added on top of any other salary or wage payment you make to your employee. This means that PAYE and any other of their usual deductions (such as student loan and KiwiSaver deductions) are made from the total payment they get from you.
For example, your employee earned $500 in a pay period and you also paid them a Short-Term Absence Payment of $350. Their total gross earnings for that pay period would be $850. This is the amount you need to enter in your Employment information return.
When to pay the Short-Term Absence Payment
You would generally pay the Short-Term Absence Payment to your employee in the affected pay period. However, if you and your employee agree, they can get the payment from you at a later date.
If the payment is made outside of their usual pay cycle this might have adverse tax implications for your employees, such as:
- they may be taxed at the wrong rate
- it may impact Working for Families entitlements.