Grace period for in-work tax credit

From 1 April 2021, people getting the in-work tax credit can continue to get it for a grace period of up to 2 weeks when their employment ends or they are taking an unpaid break from work.

Situations covered by the grace period include:

• people whose employment has ended (for whatever reason)
• people taking unpaid leave (ie not earning income) but who remain employed
• teacher aides and other support staff in schools or universities who are unpaid during school holidays (as they are employed only during the school term)

It does not include people who have stopped work because they are on paid parental leave, or getting ACC weekly compensation (including survivor payments), as they can still get the in-work tax credit.

Note there is no limit on the number of grace periods a person can get in a year, as long as they meet the qualifications each time.

During the grace period, the person can continue getting their in-work tax credit paid by Inland Revenue at the same rate as their most recent in-work tax credit payment.

If there has been a change of circumstances during the grace period, eg new partner or child, Inland Revenue will reassess the in-work tax credit amount.

Any in-work tax credit payments paid during a grace period are chargeable income for Temporary Additional Support.

If a client is granted a specified payment and the commencement date is within the:

• first week of the grace period, they will not qualify for any in-work tax credit payments during the grace period
• second week of the grace period, they only qualify for an in-work tax credit payment during the first week of the grace period.

If the specified payment is backdated to a date that falls within the grace period, Inland Revenue may create a debt for any in-work tax credit payments the client got (but no longer qualifies for) during the grace period. If the client was getting Temporary Additional Support during this period, it must be reviewed to remove the in-work tax credit as chargeable income for any period the client didn’t qualify for in-work tax credit.

If a client is getting a main benefit, they do not qualify for in-work tax credit.

However, a client may qualify for in-work tax credit during an initial stand-down if they qualify for an in-work tax credit grace period. This only applies when the grace period and the initial stand-down period cross over.

Note in-work tax credit cannot be paid after the benefit commencement date.