The Inland Revenue Department (IRD) will send a deduction notice to you when an employee has IRD Arrears that they need to pay. If you receive a deduction notice, you need to deduct the amount shown before you make any further payments to the taxpayer,  and pay the money to Inland Revenue. The maximum you can deduct is the lesser of:

• 10% of the tax debt or,
• 20% of the gross salary or wages payable to the taxpayer on payday.

Step 1: Setup your back account

To set up an IRD Arrears deduction, you will first need to set up the bank account the money is to be paid to. Go to the employee file and then select the Bank Accounts option. The click the Add button to set the account up. But do not enter an amount that will be from the deduction, which will dictate the amount that will be paid to the IRD Arrears bank account. In the Code field you need to enter ARR. The Particulars field will remain blank.

Step 2: Setup your IRD Deduction

Once you have setup the bank account, you can then setup the deduction in Pay Run Inclusions. Go to the employee file and then select the Pay Run Inclusions option. The click the Add button to set the deduction up.

Next, select the IRD Arrears deduction category from the drop-down list. Then, choose the bank account you previously set up for the IRD arrears.

Next, enter the date this inclusion is to commence, as well as the total amount owing to IRD. Lastly, click on the Save button..

Further information

The minimum deduction is $10 per week. When making IRD arrears deductions, 60% of the employee's net earnings is protected. This protection also applies to child support payments, but if there are other deductions from an employee's earnings. Then these will still be taken out of the protected 60% of the employee's net earnings.

If the lesser amount of 10% of the debt or 20% of the gross earnings is higher than 40% of the employee’s net earnings, the platform will automatically reduce the amount so that the employee is left with 60% of their net earnings.

Child Support will always take precedence,‌ if the employee has child support and IRD arrears and the prescribed amounts of both of these are higher than 40% of net earnings. The Child Support will be deducted at the prescribed rate, but the IRD Arrears will be reduced so that both deductions do not exceed the 40% net earnings. All the other fields are pre-filled for you, so you just need to ensure the Payment reference contains the correct IRD number for the employee.