What Are Schedular Payments (And How Do They Affect You)?
Schedular payments might have a lot in common with salaries and wages – but don’t be fooled into thinking they’re the same thing!
It's 2018 and flexible working hours and alternative working arrangements are pretty common these days. More and more people are contracting or working casual hours to suit their lifestyle. Luckily for us Kiwis, our tax system provides an option to support the variety of tax situations and needs that come with less traditional working arrangements.
Say hello to schedular payments, previously known as withholding tax. Schedular payments are payments that are made to contractors who perform certain activities or duties.
It might sound as though schedular payments are pretty much the same as salary or wages - but don't be fooled! Schedular payments received by contractors are very different to wages or salaries received by employees.
Like wages and salaries, schedular payments are required to have tax deducted before the payment reaches a contractor. The idea here is that contractors are able to pay their tax as they earn it throughout the year, similar to wage and salary earners, instead of being lumped with one big tax bill for your contracting income at the end of the year.
Unlike wage and salaries which have tax deducted based on the total income the employee is expected to earn for the entire tax year, schedular payments are taxed at is a flat rate that varies depending on what kind of work you’re doing. As a contractor, you also have the choice of making voluntary tax payments throughout the year at any rate from 10% to 100%.
Visit IRD's website for a full list of work activity categories or fields where schedular payments apply along with a breakdown of the respective tax rates.
What do schedular payments mean for your taxes?
Receiving schedular payments means you have more responsibilities at the end of each tax year than a wage or salary earner has.
Generally, you must file an individual income tax return (IR3) at the each tax year if you receive schedular payments; it's a legal requirement for anyone who receives over $200 in schedular payments.
Your schedular payments will have had tax deducted throughout the year at the rate you selected when you started your contracting and completed your Tax Code Declaration (IR330C) form.
Because schedular payments are taxed at a flat rate, it's pretty common for the contractors to find that the amount of tax they've paid on their schedular payments during the year is quite different from the total amount they're actually required to pay once the end of tax year rolls around. So when you file your IR3 at year-end, you'll need to square up your tax based on your total income for the year – you'll either pay the outstanding amount you still owe OR you'll get a refund of amount you've overpaid during the year.
One advantage of receiving schedular payments is that you're able to claim expenses against your income during the financial year.
Claiming work expenses when you're eligible is something we always recommend because it helps to reduce the amount of tax you're liable for. The more you claim, the less tax you have to pay. Just make sure you're keeping good records and have receipts or other documents for any expenses you'd like to claim.
You'll be able to claim costs that have helped you to complete your contract work – things like vehicle and travel costs, mobile phone expenses, software, or tools. The types of expenses that can be claimed will vary from person to person, but the general rule of thumb is: if you NEED it in order to carry out your work duties and it's NOT for personal use, you can claim it.
Have a question about the expenses you're eligible to claim? Give us a shout!
When you're a contractor receiving schedular payments, you're also responsible for your own ACC levies, Kiwisaver contributions, and any student loan repayment obligations you have.
You'll receive an invoice for your ACC levies directly from ACC. To make contributions to your Kiwisaver (and to make sure you don't miss out on the Member Tax Credit worth up to $521.43 each year!), be sure to get in touch with your scheme provider to arrange your payments.
Received $60,000 or more in schedular payments in a year? You'll need to also register for GST with IRD and get familiar with your GST obligations. Even if you haven't quite earned $60,000 but it's looking likely that you will, you MUST register for GST with IRD based on your estimated income meeting the GST threshold.
Have a question about GST or need a hand (even just for peace of mind!)? Get in touch.
Need a hand?
You're in the right place! Our specialist team here at WooHoo can help you meet your tax obligations, minimise the tax you need to pay, and make sure you're making the most of your tax position.
You might even pick up a few tips and tricks from your case manager to make contracting and receiving schedular payments work even better for you!
For more on how WooHoo can help contractors and self-employed Kiwis, including our services and fees, head over to our Tax Returns section.
Otherwise, jump over to our online application to sign up and get started - have your driver licence and IRD number handy!