Deductions from salaries and wages: Tax credits for payroll donations
Payroll giving is a scheme available to employers who file their EMS(IR348) and EDF(IR345) electronically using ir-File. Where offered the scheme gives employees the opportunity to donate to approved donee organisations of their choice direct from their pay and receive an immediate tax credit for payroll donations.
|Definition of donee organisation|
|A donee organisation is an organisation that has Inland Revenue donee status. Anyone on the approved list is eligible to receive payroll giving donations.|
Payroll giving and you
If you're an employer filing your EMS and EDF using ir-File, you can choose to offer payroll giving to your employees. You'll need to:
- deduct the requested donation amount from the individual employee's salary or wage
- calculate the correct tax credits for payroll donations for each donation made
- record the tax credits for payroll donations for individual employees on the EMS
- keep records of all tax credits for payroll donations, donation amounts, donee organisations and payment dates
- pass the donations to the chosen donee organisations within the specified timeframe of the deduction being made from the employee's salary or wage
- advise the donee organisation the donation is a result of payroll giving.
Timeframe for passing donations to the donee organisation
Donations have to be passed to the donee organisation on or before the PAYE due date which is closest to the end of the two months from the last day of the pay period that the donation was deducted.
Payroll giving and your employees
If your employees want to join your payroll giving scheme, they need to:
- check the donee organisation they wish to donate to is on our approved donee list
- give you the:
- name of the donee organisation
- amount of the donation they want to make
- pay period, or periods, they want the donation to be made, and
- donee organisation's bank account details, and/or postal address.
If your scheme allows, the frequency, amount and donee organisations chosen by employees can change at the employee's discretion.
If the donee organisation is not on the approved list
Although it's the employee's responsibility to ensure the donee organisation they want to give to is on the approved list, it's a good idea to check yourself before passing the donation payment to the named donee.
If an employee nominates an organisation for a payroll giving donation that is not approved you may not wish to make the donation, but if you do the donation made will not form part of the payroll giving scheme:
- the donation will not be eligible for the tax credit
- you may wish to discuss this with your employee.
Tax credits for payroll donations
Tax credits for payroll donations are calculated when a donation is made using payroll giving and gives immediate tax relief as a reduction in the employee's PAYE. The amount of the tax credit for payroll donations is 33.3333 cents for each dollar donation.
|Tax credit for payroll donations||$ 3.33|
The tax credit for the payroll donation amount is deducted from the employee's gross PAYE:
|Tax credit for payroll donations||$3.33 ($10.00 x 33.3333%)|
|An individual's tax credits for payroll donations can't exceed their tax for that period.|
Making corrections after you have filed your EMS
If you record a tax credit for payroll donations incorrectly on the EMS, for example:
- the wrong amount, or
- an employee has received a donation tax credit in error, or
- you make a deduction for a donation and pass it to an organisation you later discover is not on the approved donee organisation list
you can adjust the EMS. You can either all us on 0800 377 772 or write to us with:
- employee's IRD number
- pay period date, and
- tax credit amount.
|Please don't use the Employer monthly schedule amendments (IR344) form for correcting tax credits for payroll donation information.|
Any receipts you receive from donee organisations for donations made under the payroll giving scheme must be retained for your records. They should not be included as business or individual donation receipts for tax purposes.
When we disallow tax credits for payroll donations
Situations where we would disallow tax credits for payroll donations include if you:
- have passed a donation to a non-approved donee, or
- have not passed a donation on to a donee organisation within the specified timeframe.
Where a tax credit is disallowed, it becomes a PAYE debt and is liable for use-of-money interest and payment shortfall penalties.
Find out more
Date published: 24 Feb 2014