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Individual income tax

Independent earner tax credit

Independent earner tax credit (IETC) is an entitlement for individuals who earn between $24,000 and $48,000 (after expenses and losses) a year.

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When you'll qualify for the independent earner tax credit

You'll qualify for IETC if:

  • your income is between $24,000 and $48,000 for the year, and
  • you're a New Zealand tax resident.

Your income can include:

  • salary or wages, including ACC and paid parental leave
  • self-employed and/or business income
  • investment income.

When you don't qualify

You can't get IETC if you receive:

  • Working for Families Tax Credits (or your partner receives this)
  • an income-tested benefit, including:
    • emergency benefit
    • jobseeker and sole parent support
    • supported living, young parent, and youth payments.
  • a Veteran's Pension
  • New Zealand superannuation, or
  • an overseas equivalent of any of the above.
Important

IETC is worked out on whole months. If you receive any of the above payments at any time during a month, you won't be entitled to IETC for that whole month.

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How much you'll get

If your income is between:

  • $24,000 and $44,000 - you'll get $10 per week ($520 a year)
  • $44,001 and $48,000 - your entitlement will reduce by 13 cents for every dollar you earn over $44,000.
Example - earning up to $44,000

Peter qualifies for IETC and has a net income of $36,000. Peter's IETC entitlement for the year is $520 ($10 per week).

Example - earning between $44,000 and $48,000

Sarah qualifies for IETC and has a net income of $47,000. Her IETC is reduced by 13 cents for every dollar she's earned over $44,000.

Calculation

$47,000 (net income) minus $44,000 (IETC threshold) = $3,000
$3,000 multiplied by 0.13 (reduction rate) = $390
$520 (maximum IETC) minus $390 = $130

Sarah's IETC entitlement for the year is $130 ($2.50 per week).

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How to claim the independent earner tax credit

There are different ways to claim the independent earner tax credit (IETC), depending on where your income comes from.

Salary or wage earners

The IETC can only be claimed from your main source of income. If you earn between $24,000 and $48,000 from your main income source, you’ll get the IETC each pay.

Complete a Tax code declaration (IR330) with the ME or ME SL tax code and give it to your employer before your next pay.

If you don’t earn more than $24,000 from your main job, but your income from all sources is between $24,000 and $48,000, you can claim your IETC by requesting a personal tax summary.

Important

If you request a PTS and it results in a bill for any reason, you will need to pay that amount

If you change jobs, remember to check you still qualify for IETC before using the ME or ME SL tax code.

Coming off a benefit

If you're coming off a benefit to start working, and you qualify for IETC, you can start receiving it the month after your benefit stopped.

To make sure you don't get overpaid the IETC you'll need to give your employer:

  • an IR330 with the M or M SL tax code when you start working, and
  • a new IR330 with the ME or ME SL tax code after your last pay in the month you started.

All other income sources

Depending on your income, you'll claim your full IETC entitlement when you:

  • file your Individual tax return (IR3), or
  • request your personal tax summary (PTS).

Tell us on your IR3 that you're entitled to IETC, and the number of whole months you qualify.  You don’t need to do this for a PTS

Your IETC entitlement reduces the tax you needed to pay for the year - if you've paid too much tax you'll get a refund.

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Why you may have a tax bill if you received the independent earner tax credit

There are some situations where you may have a tax bill due to receiving too much IETC. Here we explain the most common situations.

Receiving IETC in the same month a benefit started/stopped

The IETC is worked out on whole months. If a benefit is received at any time during a month (even for one day), there's no entitlement to the IETC for that whole month.

This is the same for any income that stops you qualifying for the IETC.

Using more than one ME or ME SL tax code at the same time

Using more than one "ME" tax code tax at the same time means the IETC is claimed more than once (eg, $20 per week instead of $10). Any amount received over your entitlement must be repaid.

Earning under $24,000

The IETC is worked out on what you actually earn, not what you expect to earn.

If you earn less than $24,000 a year, you're not entitled to the IETC. Any amount you've claimed must be repaid.

Example - employed on $32,000 a year but earned less than $24,000

Helena started a job in January, earning $32,000 a year. She received 13 pays between January and the end of March, earning $8,000 and claiming $130 IETC.

Up until starting her new job she did part-time work and earned $13,000.

Helena's total income for the tax year was $21,000 ($8,000 plus $13,000). She doesn’t qualify for IETC and has to repay the $130 she claimed.

Not including all income when working out if you qualify for the IETC

You need to include your income from all sources when working out if you qualify for the IETC. Otherwise, you could claim too much.

If you earn up to $48,000 from your main job, but over $48,000 from all sources combined, you're not entitled to claim the IETC.

Example - salary under $44,000, total income up to $48,000

Nafisha earned $43,000 from her main job and claimed $520 IETC for the year. She also received $3,000 from a part-time job.

Based on her total income of $46,000, Nafisha was entitled to $260 IETC. She had a tax bill of $260 ($520 - $260).

Example - salary under $48,000, total income over $48,000

Delphina earned $46,000 from her main job and claimed $260 IETC for the year. She also received $3,000 of interest from her bank.

Based on her total income of $49,000, Delphina wasn't entitled to any IETC. She had a tax bill of $260 ($0 - $260).