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Budget boosts parental tax credit for families

Budget boosts parental tax credit for families

The Government is extending the parental tax credit to help many lower- and middle-income families at a time when they most need it - the birth of a new baby, Social Development Minister Paula Bennett and Revenue Minister Todd McClay say.

Budget 2014 includes the following changes:
• An increase in the parental tax credit from its current maximum amount of $150 a week to $220 a week.
• An increase in the period for which the tax credit is paid, from eight to 10 weeks following the birth of a child.
• A change to the parental tax credit abatement formula to better target the payment towards lower- and middle-income families. For example, a couple having their second child will not receive any payment if together they earn more than $99,847.

The parental tax credit is available to working families with a newborn child who are not on a benefit and who do not receive paid parental leave.

“A new baby can mean significant financial stress for many families. These changes, along with other family initiatives in Budget 2014, will provide targeted support for some families to help alleviate those stresses and improve child outcomes,” Mrs Bennett says. “The Government takes its responsibility to support families just as seriously as the responsibility to manage the economy.”

Mr McClay says extending the parental tax credit will help support parents during a time of extra financial responsibility.

“The changes to the parental tax credit are part of a wider package of changes to help families with newborns, including increases in paid parental leave.”

Fact sheet – parental tax credit
• Families with a newborn baby can get the parental tax credit (PTC) if they aren’t receiving paid parental leave and they are not on a benefit.
• Around 15,000 families each year currently get the PTC, which the National Government introduced in 1999.
• Families can currently get up to $150 a week for the first eight weeks after the baby is born. Most families getting the PTC receive the full $1,200 payment.
• Rates of payment for the PTC have not increased since 1999.
• Like other Working for Families payments, the PTC starts reducing when a family’s income rises. The income level at which this starts happening depends on the number of children in the family. Above this income level, the PTC reduces by 3.26 cents for each additional dollar of family income.
• More details on current entitlements are available from the Inland Revenue websitehttp://www.ird.govt.nz/wff-tax-credits/entitlement/what-is-wfftc/ptc/
What is changing?
• For babies born on or after 1 April 2015, the Government will increase the PTC from $150 a week to $220 a week, and extend the payment period from eight weeks to 10 weeks.
• This increases the maximum payment under the PTC from $1,200 to $2,200.
• As a result, up to 1,200 additional lower-income families are expected to claim the PTC, because it will pay them more than they would otherwise get from paid parental leave. (People cannot claim both of these payments).
• In addition, the rate at which the PTC reduces will increase from 3.26 cents to 21.25 cents for each additional dollar of family income, to put it in line with the rest of the Working for Families scheme. This change will better target the PTC towards low-to-middle income families, as shown in the following table.
• As a result, around 400 higher-income families who would qualify for the PTC under the current rules will no longer qualify.
Parental tax credit for families with a baby born on or after 1 April 2015
For people having their:
First child Second child Third child
Families can get the maximum PTC payment ($2,200) up to this level of family income, after which payments reduce at 21.25 cents in the dollar $73,724 $89,494 $105,263
PTC payments are reduced to zero at this level of family income $84,077 $99,847 $115,616

Costs of the package
($millions) 2014/15 2015/16 2016/17 2017/18
Costs of existing parental tax credit 15.0 14.0 13.0 12.0
Additional costs from Budget 2014 3.3 13.0 13.0 13.0
Total 18.3 27.0 26.0 25.0

© Scoop Media

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