Q: We’ve received an inquiry from an employee who said that they have been advised by IRD that their PAYE Tax was incorrectly calculated by their employer for the 2022 financial year which has resulted in a tax bill of over 2k.

I’ve checked the PAYE deductions and they all appear correct according to the Tax code the employee provided.  This employee had received 5 bonus payments throughout the year ranging between $24K to $10K.  These were all taxed as Lump Sum pays.  I’ve also checked the lump sum calculations and all appear to be correct as per IRD guidelines.

Could it be that taxing lump sum payments wouldn’t always result in 100% tax accuracy by the end of the year since they are inconsistent payments.  Could you please confirm?

A: Is the employee willing to provide you the documentation they have received from IRD on this?  This employee could be getting income from other sources as IRD looks at it overall and the other income could be the issue (unknown to you).

If the extra pay calculation is used yes there can be issues because it is based on an annualised calculation (last 4 weeks) and with multiple bonus payments it means each time it is based on what was earned prior to the bonus payment being made so yes this could create an underpayment or even overpayment in tax.  It is up to the employee to be active in assessing their tax liability, payroll is acting on applying the rules at the time the payment is made.