Understanding Income Tax
It’s safe to say the topic of taxes has been given a bad rap.
Anyone who’s ever played a game of Monopoly knows that the space on the board marked “Income Tax” is one of the least liked spaces because players who land on it always have to pay money.
While real life isn’t quite as simple as a board game (there’s definitely no such thing as a “Get out of jail free” card) income tax is a very real part of everyday work and life for most people with jobs. And what Monopoly doesn’t do very well is explain exactly why we need it.
Why we pay income tax
Most people who work to earn money are required to pay income taxes. What this means for you is that, depending on how much money you make, a certain percentage is taken out of your earnings and sent to the government each time you are paid.
The government collects income taxes to pay for things that we all share and enjoy, like roads, parks, playgrounds and beaches. Taxes also go towards the cost of services such as the public school system, public hospitals and the police department. It’s easy to take these things for granted but imagine how different life would be without them?
How it works
- First of all, you don’t need to pay any income tax at all if you're still at school, and you're earning less than $45 a week from all your jobs.
- Before you can start getting paid and paying taxes, you will need to get an IRD number and work out what your tax code is so that you can provide this information to your new employer.
- Most people end up paying the right amount of tax but if you get to the end of an income year (which ends on 31 March each year) and you suspect that you have paid too much tax, you might be entitled to a refund. See here for more information on how to apply for a tax refund.