A number of MFAS clients earn an income from two different sources. This is particularly true of doctors who may receive a salary from one source, such as their local DHB, while also drawing a salary or getting paid a dividend from their own private practice.
If your income is arranged like this, it probably seems quite logical and simplistic to you. However, there are ramifications that may be costing you both in the short and the longer term.
The most notable ramification relates to your ACC Levy. Let’s say you are working for your local DHB and receiving a salary on which you pay PAYE tax. As part of the tax calculation, the DHB will be paying ACC on your behalf. It is quite possible that you are also paying an ACC levy on your self-employed income – you will usually receive an invoice from ACC after your end-of-year end financials have been submitted and processed.
In other words, you may be doubling up on your ACC levy with no extra benefit whatsoever.
Now, doubling up on your ACC levy may not seem such a bad thing until we understand what it really is – the ACC levy you pay is, in effect, an insurance premium paid to ensure you are safeguarded financially should you have an accident or be unable to work, and there is a capped-based salary on which any benefit is based.
Here’s how it works. If you are unable to work because of an accident, ACC pays you a taxable weekly compensation. This is capped at an annual benefit of $104,792 (80% of an annual salary of $130,911). So, if your PAYE income is over $130,911, any extra levy charged by ACC for “other” income will not result in any higher benefit from ACC. You are, in effect, paying for something you can never receive.
It’s like over-insuring a house or a car. It doesn’t make sense to pay premiums that do not match the benefit you will receive.
What should you do?
If you have been paying the maximum ACC levy through your DHB PAYE salary (i.e., you are earning over $130,911 per annum) and you are also paying a levy on your private practice’s non-PAYE income, you are likely to have been overcharged and can request an adjustment. For some people, this adjustment equates to a significant amount of money and can result in a backdated refund.
To request an adjustment:
- You will need your Summary of Earnings from the MyIR Online service showing your PAYE salary for each tax year.
- Send this to email@example.com requesting an adjustment of your private practice levies.
The Bottom Line
In summary, it is quite possible that some of our clients may be paying an ACC levy based on their private income that they will never receive a benefit from because they are covered for the maximum based on their DHB income.
The best way to ensure this and other aspects of your personal finances are in order is to speak to an MFAS representative. We will confidentially discuss your financial needs and help you arrange your finances in a way that will achieve your goals. Phone 0800 379 325 and ask to talk to a MFAS Medical Financial Adviser.