Working for Families: How Income Changes Your Payments

Does a pay rise mean you lose Working for Families? Not necessarily. For many families the main credits reduce gradually as income rises, rather than disappearing the moment a threshold is crossed. What matters is the family's annual income, how many children qualify and which type of credit is being paid.

The following calculations use the 2026/27 New Zealand tax year, from 1 April 2026 to 31 March 2027. They illustrate the Family Tax Credit (FTC) only, before considering the In-work Tax Credit (IWTC), Best Start, the Minimum Family Tax Credit or special family circumstances.

This calculation starts after eligibility has been established. If you are unsure about care or residence conditions, read the eligibility guide first.

The starting point: NZ$44,900 and 27.5%

For 2026/27, the maximum annual FTC is NZ$7,921 for the eldest dependent child plus NZ$6,454 for each additional dependent child. The full amount applies at family income of NZ$44,900 or less, assuming the family meets the other conditions for the whole year.

Above NZ$44,900, the general FTC reduction, known as abatement, is 27.5% of the family income above that threshold. This is a reduction in the annual tax credit, not a 27.5% income tax rate and not a penalty on your pay rise. If the reduction exceeds the FTC available, that credit falls to zero; the unused reduction can then reduce an eligible IWTC.

Inland Revenue publishes the annual rates, the reduction formula and examples on its Family Tax Credit page.

Example: income rises from NZ$55,000 to NZ$65,000

Consider two households in which all eligible children remain in care for the entire tax year. Neither household has a shared-care adjustment or a change in circumstances. To compare them on the same basis, both have family scheme income of NZ$55,000 at first, increasing to NZ$65,000. These are explanatory full-year calculations, not an estimate of every payment the families might receive.

The comparison below shows annual FTC only. The full credit starts at NZ$7,921 for one eligible child or NZ$14,375 for two eligible children.

Family income	1 child: FTC	2 children: FTC
NZ$55,000	NZ$5,143.50	NZ$11,597.50
NZ$65,000	NZ$2,393.50	NZ$8,847.50
Reduction after a NZ$10,000 rise	NZ$2,750	NZ$2,750

At NZ$55,000, income above the NZ$44,900 threshold is NZ$10,100. Applying 27.5% gives abatement of NZ$2,777.50. At NZ$65,000, the excess is NZ$20,100 and abatement rises to NZ$5,527.50.

The same NZ$10,000 pay rise therefore reduces annual FTC by NZ$2,750 in both households. The two-child household still receives more because its starting credit is larger. Neither household's FTC has fallen to zero in this example.

If paid weekly, Inland Revenue uses the full-year entitlement divided by 52 and rounds instalments down to whole dollars. Compare the annual figures above; weekly bank payments may differ slightly because of rounding, changed circumstances or other credits.

The Family Tax Credit can reach zero while In-work Tax Credit remains

The abatement does not always eliminate all Working for Families support at once. Take an eligible one-child household earning NZ$80,000. Its FTC abatement is (NZ$80,000 minus NZ$44,900) multiplied by 27.5%, which is NZ$9,652.50. That exceeds the NZ$7,921 full FTC, so its FTC is zero. The remaining NZ$1,731.50 reduction can be applied to any IWTC entitlement for which the household qualifies.

For families with 1 to 3 children, a temporary increase raised the maximum IWTC from approximately NZ$97 to NZ$147 a week during 2026/27.

For 4 or more children, an additional NZ$780 a year is available for each child after the third. The extra NZ$50 was introduced from 1 April 2026 but can end before 31 March 2027 if the official petrol-price condition is met. Do not calculate a year's IWTC by assuming NZ$147 was payable throughout without checking the actual period and the family's eligibility.

Paid work can include salaried employment or self-employment, but passive income alone does not normally establish IWTC eligibility. Certain government payments can affect it. The IWTC is not merely a second FTC at the same weekly amount.

See Inland Revenue's In-work Tax Credit guidance for the work and payment conditions.

The calculation uses annual family income, eligible children and the relevant tax credit.

For a sole trader, turnover is not family income

Now consider a family in Tauranga. One partner earns NZ$41,000 of gross wages. The other operates an online store that receives NZ$60,000 from customers, but has NZ$36,000 in qualifying business expenses. Assuming no other adjustments, the business contributes NZ$24,000 of net profit, so their starting combined income figure is NZ$65,000, not NZ$101,000.

This distinction can materially affect the estimated credit. GST collected from customers is not business profit, but neither is every bank withdrawal a deductible cost. Drawings by the owner are not automatically business expenses. A year-to-date profit figure from the accounts, together with a forecast for the remaining months, will usually be more useful than total receipts into the business account.

If the business is seasonal, update the full-year forecast when contracts or expenses change. Inland Revenue calculates Working for Families over the New Zealand income year ending 31 March. Even after a strong December, you still need to estimate income for January through March.

Do not overlook your partner, child or overseas income

Working for Families uses family scheme income, which can include more than income on a PAYE summary. Under the 2026/27 rules, a non-New-Zealand-tax-resident partner's worldwide income may be included, and the passive income of a dependent child above NZ$500 may affect the family calculation to the extent of the excess. In some cases income connected with a trust, private maintenance or a major shareholding in a closely held company also requires an adjustment.

For example, a parent working offshore may still count in the household calculation even if their salary is earned and taxed outside New Zealand. What matters is tax residence and the family relationship, not just whether a payment appears in a New Zealand bank account.

The specific adjustments are described in Working out your family income.

Check business profit, partner income and your forecast for the whole tax year.

Best Start and the Minimum Family Tax Credit follow different rules

Do not apply the NZ$44,900 FTC threshold to every type of payment. Best Start has a separate NZ$79,000 family-income threshold and a 21% reduction in the periods that are income-tested. For babies born on or after 1 April 2026, that test applies from the first year; for babies born earlier, the first year is treated differently. Best Start cannot be received for the same child during the paid parental leave payment period for that child; a qualifying entitlement for a different child may continue.

The Minimum Family Tax Credit is designed to top up qualifying workers' after-tax income and has its own income limit, paid employment and minimum work-hours conditions. A single parent generally needs at least 20 qualifying work hours a week and a two-parent household 30 combined hours. It is not available solely because a self-employed business is making little profit. Its amount and repayment risk cannot be inferred from the gradual FTC formula.

Check Inland Revenue's Best Start rules and Minimum Family Tax Credit rules separately if either payment applies.

Keep your full-year income estimate current

If you receive weekly or fortnightly instalments, the amounts are based on estimates. Update myIR when a salary changes, a partner starts work, a business becomes more profitable or a new income source appears. When entering family income, include what has already been earned and what you reasonably expect to earn through 31 March.

The Taxation (Budget Measures) Act 2026 also changes some residence and family-income rules from 1 April 2027. These 2026/27 figures should not automatically be used for 2027/28. For a meaningful comparison, use the correct tax year, the correct number of dependent children, the same family circumstances and the particular credits that remain payable.

Inland Revenue explains how to update family income in myIR.

If a changed estimate has already led to a bill, read our overpayment guide. If you are checking next year's projected payments, the annual notice guide explains which period and documents to review.

Disclaimer: This article is general information about New Zealand tax and family assistance, not personalised advice. Entitlement and reporting depend on your circumstances, the tax year and the rules then applying. Seek professional advice before making significant tax or benefit decisions.