Summary

The Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill introduced a voluntary Payroll Giving scheme that allows employees who make regular payroll donations from their pay to receive an instant tax credit benefit.

Payroll Giving is a voluntary scheme so employers must decide whether they will offer it, and what charities will be available to employees for donations.

Employees who make payroll donations receive a tax credit based on the amount they donate in each pay. The tax credit is calculated at a set rate of 33.33% (truncated) of the donation amount. The tax credit is offset against the PAYE calculated on the employee’s gross pay so it reduces their PAYE for that pay. The maximum tax credit that an employee can receive is the PAYE deducted on their salary or wages each pay, it does not include the ACC levy.

Note: PayGlobal considers "Tax" to be PAYE and ACC earner levy.

Donations made through the payroll giving scheme are not eligible for additional tax credits at the end of the tax year even if the employee has not claimed the full tax credit available.

Employees can make donations from salary and wage income only. Income from other sources, such as withholding or contract payments cannot legally be used for donations.

Employers need to:

• Report employees' Tax Credit for Donation amounts to the IRD, even though the employer remits donations to the registered charities directly.
• Clearly display donations and tax credits for donations on employees' payslips.
• Pay the donations to nominated charities within a prescribed time period. The charity will then issue a receipt that must be retained by the employer to prove payment.

  Further Reading: See the Payroll Giving manual in the website library.