Most taxpayers pay their taxes in full and on time.
But sometimes people have difficulty paying by the due date. We understand life happens, and we'll do everything we can to help the taxpayer get back on their feet.
We often work with taxpayers to arrange a payment plan that fits their budget.
Even then, some taxpayers still do not pay their taxes. When our offers of assistance are not taken up, we may then collect the amount owing by sending out a deduction notice.
What is a deduction notice?
When a taxpayer has unpaid taxes, we can send a deduction notice to a third party, such as an employer or a bank, that owes money to the taxpayer. The deduction notice requires the third party to pay the money to Inland Revenue instead.
What if you receive a deduction notice?
If you receive a deduction notice, you need to deduct the amount shown ‒ before you make any further payments to the taxpayer ‒ and pay the money to Inland Revenue.
The deduction notice tells you how to pay and explains your legal obligations.
We'll send a copy of the deduction notice to the taxpayer if we have their current address.
If the taxpayer was an employee and they have left your employment, make sure you have entered a cease date on your employment information.
How much do you deduct?
The deduction notice will tell you how much to deduct (up to a maximum ‒ see the next section) and if you need to pay a lump sum or instalments.
These deductions are in addition to the usual PAYE, student loan, child support or KiwiSaver deductions.
Please note the deduction notice will continue to apply until the full amount has been paid, or we ask you (in writing) to stop making deductions.
Maximum deductible amount
You may need to deduct less money than the amount shown on your deduction notice, to ensure the taxpayer has enough left over for living expenses.
The maximum you can deduct is the lesser of:
- 10% of the tax debt, or
- 20% of the gross salary or wages payable to the taxpayer on payday.
The minimum deduction is $10 per week.
Please note this maximum applies to overdue income tax, GST, student loan repayments and gaming duty. There's a different calculation for child support ‒ see more information in the next section.
You can find a worked example of an income tax deduction in the first blue box at the bottom of the page.
Maximum deductible amount for child support
Child support has priority over other deductions.
The maximum child support you can deduct is the lesser of:
- the total amount of the child support owing, or
- 40% of the after-tax amount of any salary or wages payable to the taxpayer on payday.
The minimum deduction is $10 per week.
If the taxpayer has other overdue tax, that will be dealt with separately.
You can find a worked example of a child support deduction in the second blue box at the bottom of the page.
How to pay the deductions to Inland Revenue
If you receive a deduction notice, you should deduct the money, keep it separate from normal PAYE deductions, and pay it to Inland Revenue by the end of the month.
Please ensure you pay on time. If you have any questions or cashflow problems, do get in touch with us. We're here for you and ready to help.
If you don't get in touch and you don't make deductions and pay them to us by the end of the month, you'll become liable for the amount owed. You may also face prosecution action.
When do you stop making deductions?
The deduction notice will continue to apply until the full amount has been paid, or we ask you (in writing) to stop making deductions.
What if the taxpayer asks you about the deduction notice?
If the taxpayer has questions about the deduction notice, ask them to contact us directly. The taxpayer has no authority to cancel their deduction notice.
More information
If you'd like to know more about deduction notices, see our standard practice statement:
Kerry has overdue income tax of $3,000 but refuses to make arrangements to repay the debt.
We send Kerry's employer a deduction notice requiring a deduction of the lesser of $300 (10% of the tax debt) or 20% of Kerry’s gross wage.
Kerry earns a gross weekly wage of $900 and 20% of this figure comes to $180.
Every week, the employer deducts $180 from Kerry's wage.
Michael has overdue child support of $3,000 but refuses to make arrangements to repay the debt.
We send Michael's employer a deduction notice requiring a deduction of the lesser of $3,000 or 40% of Michael’s wage after PAYE is deducted.
Michael earns a weekly wage of $800 (after PAYE deductions) and 40% of this figure comes to $320.
Every week, the employer deducts $320 from Michael's wage.