Are you paying too much tax on your KiwiSaver account? If you are, you’ll never see that money again.
Most other kinds of tax can be refunded by the Inland Revenue Department, but what many people don’t know is that the KiwiSaver rules are different. They don’t allow the IRD to refund any tax you’ve mistakenly overpaid.
In fact, the results of either underpaying, or overpaying, the wrong tax rate on a PIE investment such as your KiwiSaver account are drastic.
Don’t overpay or underpay
Too much: If the rate you tell your provider is too high, you’ll pay too much tax, and the tax rules don’t allow IRD to refund you. You lose that money.
Too little: If you tell your provider too low a rate, you won’t have paid enough tax and that becomes a problem.
If that happens, the tax rules say you have to put in a tax return which includes your share of the fund’s investment income. Usually, most wage and salary-earners don’t need to put in a tax return at all, but if you’ve underpaid, you’ll have to.
Then you’ll have to pay top-up tax at your ‘marginal’ tax rate – which is the amount of tax paid on an additional dollar of income. That could be as high as 33 per cent, much more than most people pay.
Either way, it’s not good.
Which rate is right for you?
There are three main rates you could be paying. They’re called your PIR, short for Prescribed Investor Rate:
Check which rate you should be on at Inland Revenue and check with your employer or provider that you’re being taxed at that rate.
Story by Brenda Ward
First published 13 April 2018
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