Summary

This topics explain the processes you need to follow for a range of student loan scenarios.

Standard

In this example, Michael Smith makes a standard student loan repayment of 12% of their gross pay over the threshold.

Michael Smith's record contains the following values:

• Tax code = "M SL"
• Auto-pay = "Yes"

1. Create the standard student loan deduction. See Student Loans (NZ).
2. Process the employee's transactions to automatically create the 12% student loan deduction.

Voluntary Fixed

Employees can voluntarily make additional student loan repayments, and they usually make them as a fixed amount not a percentage of income. You set up additional repayments as permanent transactions. When the employee asks you to set up an additional repayment, you should determine the required start and end dates so you can enter them in the permanent transaction. When you open a pay for the employee, Exolvo will copy the fixed deduction across to the employee's standard transactions. When you process the pay, Exolvo automatically creates the standard 12% student loan transaction and calculates the voluntary fixed transaction value.

In this example, Michael Smith already makes standard student loan repayments and he wants to make an additional voluntary repayment of $20 per week from 01/04/2013 to 31/03/2014.

Michael's record contains the following values:

• Tax code = "M SL"
• Auto-pay = "Yes"

1. Create a Student Loan - Voluntary $ deduction. See Student Loans (NZ).
2. On Michael’s Permanents tab, add a permanent Student Loan – Voluntary $ deduction for the following values:
   • Quantity = 1.00
   • Rate = 20.0000
   • Begin date = 01/04/2013
   • End date = 31/03/2014
3. Open Michael’s next pay.

   Exolvo copies the Student Loan – Voluntary $ deduction from Michael’s permanent transactions.

4. Process Michael’s transactions.

   Exolvo automatically creates Michael's standard 12% student loan transaction and calculates his Student Loan – Voluntary $ values.

Voluntary Percentage

The process for voluntarily student loan repayments as a percentage of income is similar to the voluntary fixed process.

Catch-up

If an employee has not made sufficient student loan repayments in previous years, IRD will tell their employer to deduct additional repayments to recover the shortfall. The employee has to make these commissioner-instigated repayments in addition to their standard 12% repayment.

You need to set up these commissioner-instigated repayments as reducing balance loans.

In this example, Jamie Dawson currently makes standard 12% student loan repayments, and his record contains the following values:

• Tax code = "M SL"
• Auto-pay = "Yes"

The IRD notice contains the following values:

• Employee's name = Jamie Dawson
• IRD number = 056-392-319
• Total amount to recover = $5,000.00
• Compulsory extra deduction rate = 50%

  Important: The standard repayment rate is 12%, but the maximum additional deduction rate is still 5%. As a result, the additional deduction is no longer 50% of the standard rate (12% * 50% = 6%), it is 41.67% (12% * 41.67% = 5%).

The following table shows extra deduction values derived for other rates:

The notice states that "The amount to be deducted is a percentage of [the employee's] standard student deduction that applies for the pay period and not of their gross income".

Jamie is on a main tax code so the standard deduction is 12% of his gross pay over the threshold, and the extra deduction is 41.67% of the standard deduction, which is 5% of his gross pay over the threshold so you will use this value (5.00) in Jamie's Employee Loan record.

Important: The extra deduction is 41.67% of the standard deduction, not 41.67% of Jamie's gross pay over the threshold.

The IRD has asked you make an additional 5% student loan repayment for Jamie to repay $5,000 starting from his next pay, which is 01/04/2013. 

1. Create an SLCATCH-UP Loan Reasons record.
2. Create a Student Loan - Catch-up deduction. See Student Loans (NZ).
3. On Jamie's Loans tab, add an Employee Loan record with the following values:
   • Principal = 5000.00
   • Loan Reason = SLCATCH-UP

     Important: Do not use the interest fields for student loan repayments.

     Also please note some values in this example are no longer current as thresholds are changing each year. Refer to the IRD for further information on the current years rates and thresholds.

   • Repayment begin date = 01/04/2013
   • Repayment amount = 5.00
     The Student Loan - Catch-up deduction has Calculation method = "L. Student loan" so for employees on a main tax code, Exolvo excludes the employee's first $19,084 (annual) or $367 (weekly) of earnings and calculates the catch-up repayment as 5% (Repayment amount) of their earnings over the threshold. For employees on a secondary tax code, the threshold is ignored.
   • Deduction = "Student Loan - Catch-up"
4. Attach a scanned copy of the IRD notice to Jamie's Documents tab.

When you open Jamie’s next pay after 01/04/2013, Exolvo creates a 5% Student Loan - Catch-up transaction from his Employee Loans record. When you process Jamie’s transactions, Exolvo also creates Jamie’s Student Loan - Standard deduction.

Note: You have to use Customise Columns to display the Percentage column.

Exolvo will continue generating Jamie’s 5% Student Loan - Catch-up transactions until his Total deducted value in this loan matches the Principal value, and his loan Balance is 0.00.

If the IRD send you a notice telling you to stop repayments before the employee's catch-up amount is fully paid, then you should manually change the Principal to update the Total deducted and ensure that the Balance is 0.00 so no further repayments are made.

Special Tax Rate for Student Loans

If an employee cannot repay their student loan at 12% due to hardship, they can apply for a special tax rate for student loans (IR23BS). When the IRD sends an employee a special repayment letter, the employee needs to sign the letter and give it to their employer who can then set up a permanent standard deduction with the reduced percentage.

In this example, Alan Fletcher makes standard 12% student loan repayments, but the IRD has asked you to reduce Alan's repayments to 6% for the 2013-2014 tax year.

Alan's record contains the following values:

• Tax code = "M SL"
• Auto-pay = "Yes"

The IRD letter contains the following values:

• Special rate = 6%
• Start date = 01/04/2013
• End date = 31/03/2014

1. On Alan's Permanents tab, add a Student Loan - Standard deduction with the reduced percentage.

• Percentage = 6.0000
• Begin date = 01/04/2013
• End date = 31/03/2014

1. Attach a scanned copy of the IRD letter to Alan's Documents tab.
2. Open Alan's next pay.

   Exolvo copies the special Student Loan - Standard deduction from Alan's permanent transactions.

3. Process Alan's transactions.

   Exolvo calculates Alan's special Student Loan – Standard value.

   Note: Alan's special 6% standard transaction overrides the automatic 12% standard transaction.

4. At the beginning of the next tax year, review Alan's tax situation and update his record if required.

Special Repayment Rate

Special repayment rates only apply to an employee's secondary income for a maximum of 3 months at a time. When the IRD sends an employee a special repayment letter or certificate, the employee needs to sign the letter and give it to their employer who can then set up the special repayment rate.

In this example, you need to change Julian Garrison's student loan repayment rate to 8%, and his record contains the following values:

• Tax code = S SL
• Auto-pay = Yes

Julian's special repayment letter from the IRD contains the following values:

• Special rate = 8%
• Start date = 01/04/2013
• End date = 30/06/2013

Julian's tax code is not changing.

1. Create a Student Loan - Special Rate deduction. See Student Loans (NZ).
2. On Julian's Permanents tab, add a Student Loan - Special Rate deduction with the increased rate.
   • Rate = 8.0000
   • Begin date = 01/04/2013
   • End date = 30/06/2013
3. Attach a scanned copy the IRD letter to Julian's Documents tab.
4. Open Julian’s next pay.

   Exolvo copies the Student Loan - Special Rate deduction from Julian’s permanent transactions.

5. Process Julian’s transactions.

   Exolvo calculates Julian’s Student Loan – Special Rate value.

6. In June, review Julian's tax situation and update his record from 01/07/2013, if required.

Repayment Exemption Certificate

Employees may be eligible for a student loan repayment exemption.

Further Reading: See http://www.ird.govt.nz/studentloans/payments/compulsory/salary-wage/repay-exemp/sl-repay-exemp.html

The IRD provides eligible employees with a repayment exemption certificate that advises the employer not to deduct student loan repayments. This certificate is valid for a maximum of one tax year (1 April - 31 March) at a time. It covers the time between semesters, including the Christmas break, as long as the employee is continuing their study programme in the next semester. If the employee is going to continue study in the next tax year, they need to reapply for the exemption.

Exempt employees do not have to use a student loan (SL) tax code, and they do not need to make student loan repayments.

In this example, the IRD issued Peter van der Loo with a repayment exemption certificate so he does not have to make standard student loan repayments for the first quarter of the 2013-2014 tax year.

Peter's record contains the following values:

• Tax code = M SL
• Auto-pay = Yes

The Repayment Exemption Certificate contains the following values:

• Start date = 01/04/2013
• End date = 30/06/2013

  Important: Ensure that you apply these dates correctly.

1. Before you process and close Peter's pay for 01/04/2013, enter Tax code = M on Peter's Tax tab.
2. Attach a scanned copy of the repayment exemption certificate to Peter's Documents tab.
3. Outside Exolvo, record the end date of the certificate because you will need to resume Peter's student loan repayments from this date. In this example, you would change Peter's Tax code back to M SL on 01/07/2013.