Working for Families payments are based on an estimate of future income, or are paid at the end of the tax year once Inland Revenue knows how much income a family earned in that year.
Estimating income for the year ahead is difficult and only a few families end up with exactly the right payments. For many families the estimate is relatively close. About a third of families receive either 20% more or 20% less than they should have been paid.
Basing payments on an estimate of income can lead to people being overpaid if their income increases during the year. If so, they have to pay back the overpayment, and this can lead to debt.
Some families choose to wait until the end of the year when they know exactly what their income was for that year. They take their Working for Families payments in a lump sum, so they don’t have to worry about getting into debt. This means they might struggle to make ends meet during the year when they really need the help.
A main proposal in the discussion document aims to make sure people have certainty that their payments are correct and will not have to be repaid. Most families who currently choose to take a lump sum payment after the end of the tax year would be able to get payments during the year without fear of being overpaid.
The current system can be complicated. The proposals aim to make it easier for people to know what their Working for Families entitlements are and easier to work with Inland Revenue to get their payments.
These proposals to improve the Working for Families system aim to give families:
- certainty – so the person knows what they are paid is correct and won’t need to be paid back
- timeliness – so the payments adjust quickly when income changes
- consistency – so payments are predictable and the family can budget and make informed choices.
These objectives can conflict. For example some people might prefer to have the same payment every time. Others might prefer that payments adjust quickly when something changes in their life.
People would still have to tell Inland Revenue when family circumstances change, for example, if they have another baby.