The tax cuts the National Party campaigned on will officially take effect tomorrow, with around 3.5 million New Zealanders benefitting, according to Finance Minister Nicola Willis. 

Changes from July 31 include an increase in personal income tax thresholds, the extension of the independent earner tax credit (IETC) and an increase to the in-work tax credit and the minimum family tax credit. 

“We know Kiwis have been doing it tough, but cost-of-living relief is on its way. As well as the tax threshold changes, we’re also increasing the in-work tax credit – which helps support low- to middle-income working families with children – by up to $50 a fortnight,” Willis said. 

“Alongside this, eligibility for the up to $20 per fortnight independent earner tax credit – which is for people who do not receive a benefit or Working for Families – has been extended to people earning up to $70,000 of income per year.” 

What are the income tax threshold changes? 

-10.5% on income below $15,600 – (currently $0 - $14,000) 

-17.5% on income from $15,601 to $53,500 – (currently $14,000 - $48,000) 

-30% on income from $53,501 to $78,100 – (currently $48,001 to $70,000) 

-33% on income from $78,101 – $180,000 (currently $70,000 to $180,000) 

-39% on income above $180,000 (no change). 

The tax cuts package is the same as that set out in National’s campaign policy, which its coalition partners agreed to allow it to implement in return for some concessions. 

These tax cuts will provide savings of up to $40 a fortnight for many workers, although the lowest income earners and superannuitants will only benefit by $9. 

All the income tax bands have been lifted, other than for income of more than $180,000. 

How do I get my income tax cut? 

New Zealanders do not need to do anything to receive their tax cut. It will be automatically calculated and adjusted in their pay. 

“IRD have worked with payroll providers, government agencies, large entities, tax intermediaries and employer associations to ensure they have the relevant information to update their payroll systems in time,” Willis said. 

Willis said the changes required more than 242,000 employers and more than 120 payroll providers to be ready. 

Revenue Minister Simon Watts said Inland Revenue has ensured it was prepared. 

More information about the changes and what employers must do is available on the IRD website. 

What are the changes to the In-Work Tax Credit? 

Another way you could end up with more money in your pocket this week is due to the increases in the in-work tax credit (IWTC). 

The IWTC is a tax credit for families with dependent children who have some income from paid work each week. 

It pays a certain amount a week, depending on income, for up to three children and then an additional smaller amount for each of your other children. 

From Wednesday, the IWTC will increase by up to $50 per fortnight, depending on income. 

The base rate for the IWTC increases from $3770 ($72 a week) to $5070 ($97 a week). 

You can’t get the IWTC if you’re receiving an income-tested benefit (eg Jobseeker Support or Sole Parent Support) or a student allowance or earnings-related ACC payments. 

In its tax relief fact sheet, the Government acknowledged that fewer than 200 households could be worse off on average by $8 per fortnight due to an unintended interaction between the IETC and Working for Families tax credits. 

“The Government has sought advice on this issue with a view to ensuring households are not unfairly disadvantaged,” the fact sheet notes. 

Prime Minister Christopher Luxon and Finance Minister Nicola Willis. Photo / Mark Mitchell 

What are the changes to the Minimum Family Tax Credit? 

The minimum family tax credit (MFTC) is for low-income working families with dependent children, in addition to the IWTC. 

From July 31, the threshold to get the MFTC increases by $4 per fortnight. 

This guaranteed minimum is being increased slightly to allow MFTC recipients to benefit from the income tax changes, on top of the IWTC increase. 

The MFTC tops up the after-tax income of around 3,000 eligible low‑income working families to a guaranteed minimum amount. 

What are the changes to the Independent Earner Tax Credit? 

The independent earner tax credit (IETC) eligibility is being extended to those earning between $24,000 and $70,000 per annum. 

The IETC is a tax credit of up to $10 a week or $520 a year. 

Those earning $24,000 to $66,000 per annum receive the full credit, which then reduces by 13 cents for every dollar earned up to the limit of $70,000. 

Prior to the changes, the IETC was available to those earning between $24,000 and $48,000 per annum. 

The IETC is available for individuals in paid work who don’t receive other forms of government assistance, such as Working for Families tax credits, a main benefit or New Zealand Superannuation. 

Those eligible can receive the IETC during the year by using an appropriate tax code, or get it all at the end of the year. 

The Government expects after these changes, a total of 725,000 people will receive the IETC. 

What about the early childhood education costs? 

The FamilyBoost credit is a separate system from the tax cuts, through which families can apply for the reimbursement of costs of early childhood education (ECE). 

Parents and caregivers will need to submit ECE invoices every three months – which can be done online via myIR – with FamilyBoost refunded as a lump sum. 

Invoices from early childhood education providers from as early as July 1 this year can be submitted. Families will be able to register for the FamilyBoost credit in September, with the refunds being paid out from October 2024. 

Households can be reimbursed up to 25% of their ECE fees, up to a maximum amount of $75 per week, after the 20 Hours Free and MSD Childcare Subsidy have been taken into account. 

FamilyBoost rebate amounts. Photo / IRD 

The amount families can claim through the rebate gradually reduces for those earning between $140,000 and $180,000. Families earning more than $180,000 are ineligible. 

Families will only be able to claim this payment once a quarter. 

Willis said more than 100,000 families would be eligible, while an estimated 21,000 could receive the maximum amount, to be paid three-monthly. 

Jaime Lyth is a multimedia journalist for the New Zealand Herald, focusing on crime and breaking news. Lyth began working under the NZ Herald masthead in 2021 as a reporter for the Northern Advocate in Whangārei.