FAQ’S – Penalties and child support – What the 2021 law changes mean

Following the 2021 changes to child support laws, there are potentially significant changes to the way liable parents are now exposed to penalties under the child support regime.

We have created a series of FAQs with answers to help understand the changes.

When do the changes take effect?

The changes take effect in two stages. Stage one took effect from 1 April 2021 and introduced changes to the way in which penalties are charged and written off.

The second stage will take effect on 1 April 2022. The second stage will introduce timeframes for parents to establish paternity, advise Inland Revenue of their existing childcare arrangements, and a 60 day grace period before a penalty is charged for parents who are new to paying child support.

The kinds of income that are considered when child support is calculated is being expanded and payment of child support through compulsory automatic employer deductions will be introduced for parents who are new to paying child support.

What are the changes to the way penalties are charged?

Prior to 1 April 2021, penalties for late payments were imposed on liable parents if they did not meet their child support obligations. Penalties in the first month were called initial penalties and were charged in two stages. The first stage was the greater of 2% of the outstanding amount or $5, the day after the due date. The second stage was the addition of another 8% of the outstanding amount eight days after the due date.

If the initial penalties were not paid, incremental penalties were then added to the outstanding balance, each month the amount remained outstanding. The incremental penalties were 2% of the outstanding amount, including penalties, from one month after the due date for the next 12 months and 1% of the outstanding amount including penalties each month from 13 months after the due date.

How have the penalties changed?

After 1 April 2021, incremental penalties have been removed and will no longer be charged. Liable parents will be charged an initial penalty of 2% of the amount of financial support unpaid at the expiry of the due date but also 8% of the unpaid amount after 28 days past the due date.

In addition, liable parents who are new to paying child support are provided with a grace period of 60 days before the initial penalty is imposed.

What does removing the incremental penalties mean for liable parents?

If you are a liable parent who has existing unpaid child support debt, you will no longer have to worry about any further incremental penalties being added to your account after 1 April 2021.

What about initial penalties?

While an initial penalty will still be charged, the amount of the penalty has been reduced and it is no longer charged in two stages. The new initial penalty is an amount equal to 2% of the amount of financial support remaining unpaid at the expiry of the due date.

What is a grace period from having to pay penalties?

From 1 April 2022, liable parents who are new to paying child support are given a grace period of 60 days after the date the child support payment is due, before initial penalties are charged.

The grace period gives liable parents time to contact Inland Revenue to understand the process and their child support obligations, and to adjust to making child support payments.

What does penalty write off mean?

Under the previous law, a child support debt could get very large, with most of the debt being the accrual of incremental penalties. In certain circumstances, Inland Revenue is able to write off some or all of the pre 1 April 2021 penalties. If an initial penalty has been imposed after 1 April 2021, liable parents may seek to have this penalty waived under certain circumstances too.

When can penalties be written off?

When a liable parent requests for their penalties to be written off, Inland Revenue will check to see if they come into one of the applicable categories to have their penalties written off.

Under the previous law, Inland Revenue could waive a penalty for the following reasons (these reasons are still valid under the new law):

1. there was a reasonable cause for the late payment;
2. the payment was late because another person failed to make the deduction on time;
3. the late payment was an honest mistake by the liable parent;
4. Inland Revenue made the error;
5. the payee waives their right to child support; or
6. the payee advises Inland Revenue not to collect the arrears. This could be because the payee and liable parent have entered into a private child support agreement, the payee has decided they will collect the arrears themselves or the payee has decided they do not want the arrears. This is called uplifting the debt.

Payees who want to waive or uplift a debt cannot be the recipient of a benefit.

The new law provides Inland Revenue with three more reasons to waive a penalty. Two of the reasons apply to both pre and post 1 April 2021 penalties, where: 

1. the liable parent is experiencing severe hardship; or
2. it is not a good use of Inland Revenue’s resources to collect the penalty.

The third reason applies to pre 1 April 2021 penalties only and is aimed at liable parents who have large amounts of unpaid child support debt, where the majority of the debt is made up of penalties. This reason is where Inland Revenue is satisfied that it would be fair and reasonable to write off part of, or all of the penalties.

How much time do I have to tell Inland Revenue about existing childcare arrangements?  

Prior to 1 April 2022, when child support is assessed, the liable parent is issued an assessment outlining how much their payments are and the reasoning behind the amount. The liable parent is contacted by Inland Revenue to discuss their child support obligations. If the receiving and liable parent have an agreement of shared care, the amount of child support payable by the liable parent might change. If the amount changes, a new assessment is issued with a new payment amount. The amount that was originally assessed is due and payable up until the date the new assessment takes effect.

From 1 April 2022, if a liable parent advises Inland Revenue of their care arrangements within 28 days of the original assessment being issued and the amount payable changes, Inland Revenue will backdate the new assessment to the date of the old assessment. This means the liable parent can disregard the original assessment and will only be required to pay the amount due under the new assessment

I am new to paying child support. How can I pay?

Under the previous law, parents who were new to the child support scheme were allowed to choose to make payment in a manner that was acceptable to Inland Revenue, if they did not want automatic deductions being made by their employer from their pay.

From 1 April 2022, liable parents who are new to the child support scheme will have child support payments deducted automatically by their employer and they are not able to choose another payment method unless:

1. they are already paying child support by another payment method (e.g., paying child support for another child through a payment method that was accepted before the new law) and they are not behind in their payments; or
2. if Inland Revenue considers payment by automatic deduction inappropriate in the liable parent’s circumstances and accepts another payment method.

Compulsory automatic deductions for salary and wage earners

After 1 April 2022, if you are a liable parent and are a salary or wage earner, just like tax, child support payments will be taken out of your pay by your employer before you receive your pay.

Compulsory automatic deductions for contractors

If you are liable parent and a contractor who receives schedular payments, just like tax, child support will be deducted automatically from your income before you receive it. There are two ways this could happen: 

1. If you advise your payer that your tax code is CSE (Child Support Employee), when your payer pays you, they will deduct your child support automatically.
2. If you do not use the CSE tax code and Inland Revenue is unable to contact you about your obligations, Inland Revenue will take the following steps to ensure automatic deductions are being made:
   1. Inland Revenue will assess if you are receiving any income where tax is being withheld; and
   2. If Inland Revenue identifies income where tax is being withheld, they will contact your payer and issue them with a section 154 deduction notice, requiring your payer to make automatic child support deductions from your income. You are unable to request your payer not to make these deductions.

To find out if you are a contractor who receives schedular payments, please click here.

Can tax losses still be carried forward to reduce the amount of child support due?

Before 1 April 2022, if a liable parent suffered tax losses in a previous year, the losses could be brought forward into the current income year, reducing their income and therefore the amount of child support which was due. From 1 April 2022, liable parents will no longer be able to carry such tax losses forward.

Will investment income be considered?

From 1 April 2022, investment income will be into consideration when calculating a liable parent’s means to pay child support.

What is the timeframe to change a child support assessment?    

Prior to 1 April 2022, Inland Revenue may amend child support assessments at any time. From 1 April 2022, the timeframe to amend a child support assessment has been changed to four years. Child support assessments can only be changed if:

1. Information or an application is received before the end of the fourth child support year;
2. The changes are requested by the liable parent within four years of the date of assessment; or
3. If an exception is granted.

An application to change a child support assessment can be made through Inland Revenue’s online service, myIR, or a request can be made by contacting Inland Revenue by phone or mail.

What is the timeframe to establish paternity?

If a person makes an application for child support (Applicant) and the identity of the child’s father is in question, the Applicant needs to apply to the court for a paternity order. Prior to 1 April 2022, there is no set timeframe for the Applicant to apply to the court for a paternity order. After 1 April 2022, the Applicant must: 

1. make an application to the court for a paternity order within 60 days from the date Inland Revenue receives an application for a child support assessment; and
2. provide Inland Revenue with the paternity order within 60 days of the paternity order being made by the court.