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Newsroom.co.nz
Newsroom.co.nz
Business
Jean Bell

Contractors caught out by tax on wage subsidy

Self-employed people are required to pay tax on the Covid-19 wage subsidy payments they've received. Photo: Getty Images

The end of the financial year is bringing a nasty surprise to those who aren't up to speed on the rules - thousands of dollars they owe to the taxman.

Many self-employed people didn't realise they have to pay tax on the Covid-19 wage subsidy paid out last year.

The Government dished out eight fortnightly payments between August and December to help employers and sole traders keep afloat when the country was plunged into lockdown.

People working full time were handed $600 a week, while part-time workers were given $359. Those with fluctuating hours were paid a rate based on the average hours they generally worked.

Businesses don’t need to worry about paying tax on the wage subsidy, but contractors do. While some are aware of this, others say this is the first they've heard of it.

Newsroom is aware of one contractor who received about $7,000 in from the wage subsidy and is now expecting to have to hand back $2,000 in tax.

Another sole-trader in a similar situation is a 20-something Aucklander, who Newsroom has agreed not to name, working in the TV and film industry.

He’s technically counted as a self-employed contractor. Usually, tax is automatically deducted from the money in his pay-packet, so perhaps he can be forgiven for not considering he might need to pay tax on the $5000 or so he got from the Government.

Nonetheless, it’s rough news to hear he’s going to have to find funds to pay tax on the money he got through the subsidy.

He doesn’t think he’s alone in being caught out.

“I haven’t heard anyone talk about paying tax on it, I don’t think anyone has the expectation that we would need to pay tax on it,” he says. "Why wouldn’t it be taken out before we get the payment?”

“A lot of my co-workers are younger than me and fresh out of uni. They will probably even be worse off in terms of having to pay that back than I will be." – Auckland film industry worker

He’s got savings he can dip into, but many of his colleagues likely won’t be in the same boat.

“A lot of my co-workers are younger than me and fresh out of uni. They will probably even be worse off in terms of having to pay that back than I will be," he says.

When the Government announced the support back in August, there was no mention of having to pay the tax back, but information on the Work and Income website does lay out what sole traders need to know.

Newsroom has approached the Inland Revenue Department on what options there are for people who are caught out, but the organisation's website outlines options for people who’re having difficulty paying tax, such as setting up an instalment arrangement.

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