NZ Contractor Withholding Tax: Everything You Need to Know
If you`re an employer in New Zealand who hires contractors, you need to be aware of the contractor withholding tax (CWT). This tax was introduced in 1972 and is meant to ensure that contractors, who are essentially self-employed individuals, are paying their fair share of taxes.
In this article, we`ll break down everything you need to know about the CWT, including who needs to pay it, how much it is, and how to calculate it.
Who Needs to Pay CWT?
If you`re an employer in New Zealand who hires contractors, you may be required to deduct CWT from their payments and remit it to the Inland Revenue Department (IRD). The amount of CWT you need to deduct depends on the contractor`s tax rate, which is determined by their income and other factors.
According to the IRD, you need to deduct CWT from a contractor`s payment if all of the following conditions apply:
1. The contractor is an individual, partnership, or trust (not a company).
2. The contractor is providing services, not goods.
3. The contractor has an IRD number.
4. The contractor has not provided you with a valid certificate of exemption.
How Much Is CWT?
The amount of CWT you need to deduct depends on the contractor`s tax rate, which is determined by their income and other factors. The current rates are:
– 10.5% for contractors who earn up to $14,000 per year
– 17.5% for contractors who earn between $14,001 and $48,000 per year
– 30% for contractors who earn over $48,000 per year
Note that these rates may change, so be sure to check the IRD website for the most up-to-date information.
How to Calculate CWT
Calculating CWT can be a bit tricky, but here`s an example to help you understand:
Let`s say you hire a contractor who earns $50,000 per year. The contractor`s tax rate is 30%, so you need to deduct 30% CWT from their payments.
To calculate the CWT, you`ll need to multiply the contractor`s payment by the CWT rate. So, if you pay the contractor $1,000, the CWT would be:
1000 x 0.3 = $300
You would then remit the $300 to the IRD along with your other tax payments.
As an employer in New Zealand, it`s important to understand the contractor withholding tax and how it applies to your business. By deducting and remitting CWT correctly, you can avoid penalties and ensure that contractors are paying their fair share of taxes.
If you have any questions about CWT or other tax-related issues, be sure to check the IRD website or consult with a tax professional.