The IRD has released information on how the wage subsidy works:
Wage subsidies and self isolation leave subsidies should be passed on to the employee by the employer and processed as part of the employee’s normal wages. All deductions of PAYE, KiwiSaver, Student Loans, Child Support etc are made as normal.
If the total wage (subsidy + employer funded pay) amounts to the same wages as previously, the pay and deductions on their payslip should be the same. Whether employers top up the subsidy with cash payments or annual leave is up to them.
Wage subsidies are paid by the Ministry of Social Development (MSD). The employer will not be liable for income tax or GST on the subsidy received from MSD and will not be entitled to an income tax deduction for wages paid out of the wage subsidy.
We're hearing a lot of questions on the Government's COVID-19 Wage Subsidy and Leave Payment scheme. Here are some quick answers!
Is the wage subsidy payment and self isolation/sickness payment subject to GST?
No, an Order in Council is being drafted to amend the GST Act.
Is the wage subsidy paid to the employer taxable?
No, it is an excluded income.
Is the wage subsidy deductible when paid by an employer as part of wages to an employee?
No, it is not deductible.
Is the wage subsidy taxable to the employee?
Yes, as it is scheduled as part of their wages it is subject to PAYE, KiwiSaver, Student Loan etc
Is the leave payment paid to self employed people or employees for self isolation subject to tax?
Yes, it is paid to replace taxable income so it is subject to tax.
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