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You can provide benefits to your employees in the form of employee share schemes (ESS).

Taxing employee share scheme benefits

You need to choose how the ESS will be taxed. Whichever option you choose needs to apply to all your employees.

Option 1: Your employee pays the tax

  • The ESS benefits are treated as income, which may affect an employee’s student loan deductions, child support payments or Working for Families payments.
  • Each employee will have their tax squared up either through an automatic income tax assessment or an individual tax return - IR3 if they have any other untaxed income. They will have to pay the balance of any tax owing.

Option 2: You pay the tax

  • You tax the ESS benefits as lump sum payments - also known as extra pay.
  • You do not need to deduct KiwiSaver or pay ACC.

If your employee agrees you can sell some of the shares to pay any tax owing.

Filing employment information about employee share scheme benefits

What you need to tell us

Include an employee’s ESS benefits along with their other earnings if you file using the on-screen entry in myIR, by paper, or with some payroll packages (check with your payroll provider). You need to show the:

  • employee's name and IRD number
  • taxable value of the ESS benefit (in the ESS field), also include this as Earnings not liable for ACC earners’ levy
  • total tax, and any student loan or child support, deducted from the benefit.

If your payroll package does not currently let you do this, then you need to show an employee’s ESS benefits separately from any other earnings the employee receives. Add a separate entry in your employment information showing the:

  • employee’s name and IRD number
  • tax code ESS
  • taxable value of the ESS benefit (as gross earnings) – also include this as Earnings not liable for ACC earners’ levy
  • total tax, and any student loan or child support, deducted from the benefit.

You do not file employment information about the ESS benefits when the:

  • employee or associate sells share rights to a non associated third party
  • share benefit arises from an exempt ESS, as this is exempt income.

When you need to tell us

You need to identify a ESS deferral date. This is 20 calendar days after the share scheme taxing date.

The share scheme taxing date is the earlier of the date when the:

  • benefits are cancelled
  • benefits are transferred to a non associated person
  • employee’s ownership of shares is no longer affected by the terms of their employment.

You can either file the information on a payday basis or twice a month.

Exempt employee share schemes

If you operate an exempt employee share scheme you need to:

  • tell us you are operating the scheme
  • report at the end of the tax year on the total value of the shares granted to your employees.

Do not include exempt schemes in your regular employment information filing.