Couple owes $20k Working for Families debt 'through no fault of our own'
Phoenix Ruka says he and his wife owe about $18,000 to $20,000 in Working for Families debt, despite always doing their best to ensure that they supplied the correct details about their income and circumstances.
"We've always stayed up to date with my salary and what we received from them and updated my salary every time it went up and down," Ruka said.
"What we're receiving was what they assured us we were entitled to. But then we got a massive bill saying they had overpaid us."
He said his wife had been "relentless" in trying to work out what had happened.
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It was discovered that a couple of years they had been underpaid, by many thousands of dollars, which they were reimbursed, but one year they were paid too much, which left them with the debt.
"I think the really frustrating part is that it's through no fault of our own. We owe a substantial amount of money. Now they're taking $350 a fortnight out of our bank account," Ruka said.
"We've gone back and forth and shown them our expenses, that we actually can't afford the amount they're taking. We've shown them our bills, our mortgage — they told us that they can't keep taking money if we can't afford it, but we can't."
He said there had been multiple times where the money that was being taken to repay the debt was all that was left in their bank account.
Change proposed
It's an issue the government is attempting to tackle with proposed changes to the way that income is assessed for Working for Families.
As part of the Budget, it was announced that the threshold at which entitlements start to abate was to be increased slightly, and the government would look at options to help avoid the issue of Working for Families debt.
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Inland Revenue's discussion document said 85% of Working for Families households received their payments weekly or fortnightly during the 2022 tax year, based on an income estimate.
Only 15% were receiving their credits annual based on the family's actual income once income tax had been assessed.
Those who were being paid weekly or fortnightly were subject to an end of year "square up" process by Inland Revenue, the document noted, although they were expected to update IRD with any relevant changes during the year.
In the 2022 year, only 24% of households receiving weekly or fortnightly payments and squared up by IRD had received the right amount of Working for Families credits.
Those who were overpaid are left with a debt to repay.
The document said debt was a particular problem for low- and middle-income families because it reduced their ability to meet their day-to-day costs in the future.
"Debt undermines the intent of the Working for Families scheme to support low to middle income families to meet basic needs and incentivise work."
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Debt increases
The amount owed by Working for Families recipients has been steadily increasing over the years.
The document noted that in June 2024, 56,800 accounted for $273.5 million of Working for Families debt.
There were 21,418 instalment arrangements in place to clear $50 million of debt.
"Having to estimate annual income in advance is the most common reason why families do not receive the right amount during the year," the document said.
"For many families, estimating yearly income is difficult to do with any accuracy. Under the current income estimation model, families can still be overpaid when their income increases unexpectedly. For example, something as simple as a promotion or starting a new job towards the end of the year could cancel out their Working for Families entitlement and leave them in debt."
But the document said assessing people's income very regularly could mean a lot of changes in what people received.
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If someone was paid fortnightly, some months could have two paydays and some three. Someone who was paid every four weeks would occasionally be paid twice in one month.
"Families would need to check in more often to report or confirm their income so that Inland Revenue can recalculate their payments. This would mean an increase in time spent interacting with Inland Revenue and its systems. This could also mean payments would vary every week or month, making it harder for families to budget and plan."
The discussion document said the government's current thinking was that a quarterly assessment could strike the right balance between responsiveness, certainty and recipient effort. It was seeking feedback on the idea.
The government also suggests a shift from calculating a recipient's Working for Families on the recipient's estimate of future income over the coming year to basing the calculation on past income they actually received. This would help to prevent people going into debt.
It is also proposing to simplify the residence criteria for Working for Families and require both caregivers and children to be physically present in New Zealand to qualify.
Review limited - advocate
Susan St John, associate professor at the University of Auckland and Child Poverty Action Group spokesperson, said she thought the review was limited.
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"There are huge difficulties for self-employed in more regular assessment. For income that is not earned regularly it can cause volatility and add to the admin or compliance load. There are other ways — in Australia they hold a portion back until the end of the year."
She said the review did not address the problems of Working for Families in a meaningful way.
"They arise because the threshold is way too low and the rates of clawback way too high."
She said the scheme was confusing with the different types of credits available, and the poorest 200,000 were excluded from the full package, missing out on about $5000 a year.
Revenue Minister Simon Watts said the government knew that it could be distressing to have debt to Inland Revenue. "We are interested in what people think of the proposals."
Another woman, Amy says she's still paying off the $12,000 in Working for Families debt she was landed with three years ago, amid a messy divorce.
She and her husband were shareholders in a business and, she says, he incorrectly reported some of the business profit as income in her name.
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That prompted the government to think she had been overpaid credit, and she was landed with a bill.
She now can only receive $172 a week in Working for Families credits for her three children because she is paying back the debt.
She is a single parent also paying a mortgage.
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