Employers can choose to pay tax on the ESS benefit or the employee must pay the tax.
Option 1: You pay the tax
- You treat 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 shares to pay any tax owing.
Option 2: 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 entitlements.
- Each employee will have their tax squared up either through an automatic income tax assessment or an Individual income tax return - IR3 if they have any other untaxed income. They will have to pay the balance of any tax owing.
- It's best practice to let your employee know they will have to pay tax on the ESS benefit.
Reporting ESS benefits
You need to file employment information about the taxable value of the ESS benefit to your employee, even if you choose not to deduct tax from the benefit. You do not need to provide information on the following:
- benefits received by former employees if you chose not to withhold tax
- benefits under an Exempt ESS.
Filing employment information about employee share scheme (ESS) benefits
If you have not told us about ESS benefits provided in previous years, you will need to let us know. You can make a voluntary disclosure for these.