The Inland Revenue Department will send more than one million letters to people on the wrong tax rate for KiwiSaver this year.
According to an article in the NZ Herald, the tax department started sending out letters to people who had not paid enough tax on their KiwiSaver investments in May 2019 prompting an outcry from people worried about getting an unexpected tax bill.
The tax rate in question is the Prescribed Investor Rate or PIR which every KiwiSaver member has to provide to their KiwiSaver provider.
The PIR is based on a member’s last two years’ income. As per IRD rules, if you use a rate that is lower than your correct PIR, you will need to complete an income tax return at the end of the year and pay any additional tax (plus any penalties and interest charged by Inland Revenue). However, if you use a rate that is higher than your correct PIR, you will not get a refund of any overpaid tax.
This makes it very important to use a correct PIR. You can use the PIR calculator here to determine the correct PIR rate to use for your KiwiSaver account.
Dig Deeper: KiwiSaver Tax – Everything you need to know