Working for Families Square-Up at IR3 Time 2025-26 & 2026-27 — How Over-Payments Get Recovered (IRD)

If you claim Working for Families (WfF) tax credits and had any change in family income during 2025-26, there’s a reasonable chance IRD will send you a bill at tax time. The WfF system pays you weekly or fortnightly during the year based on your estimated family income — then, after 31 March, it reconciles that against your actual income. Over-estimate your income and you get a top-up refund. Under-estimate it (or pick up extra work you didn’t report) and IRD claws the over-payment back through your IR3 wash-up.

This guide covers how the square-up works for the 2025-26 tax year (1 Apr 2025 – 31 Mar 2026), the most common scenarios that cause over-payments, and how to avoid the worst of the shock in 2026-27.

Need a quick estimate of your entitlement? Our Working for Families calculator shows the weekly rate based on your family income and structure.

How WfF Gets Paid During the Year

When you sign up for WfF, IRD asks for your estimated family income for the year. From that number they calculate your weekly or fortnightly entitlement across four credits:

• Family Tax Credit (FTC) — the largest, paid for each dependent child
• In-Work Tax Credit (IWTC) — extra $72.50/week if you’re working the required hours
• Best Start Tax Credit — extra for children under 3
• Minimum Family Tax Credit (MFTC) — top-up if family income is under ~$36,400 from work

The amount reduces as family income rises. At $42,700 for 2025-26 the abatement begins (20c per $1 over the threshold), and at higher incomes the credits taper to zero entirely.

The key word is estimated. IRD pays based on the number you gave at sign-up. If reality comes in higher, you’ve been over-paid.

What Triggers a Square-Up

After 31 March, IRD calculates your actual family income from:

• Your and your partner’s taxable income for the year (PAYE on salary, self-employment profit, rental profit, imputed dividends, overseas income)
• A handful of WfF-specific add-backs — PIE income cashed out, attributed trust income, fringe benefits of a shareholder-employee (with a close company), net passive income of dependent children

If your actual figure is higher than the estimate IRD paid you against, they recover the difference. For the 2025-26 year this reconciliation happens:

• Automatic square-up — for most PAYE-only families, inside the June-July automatic income tax assessment. IRD runs both calcs and nets them against your PAYE refund/bill.
• Inside the IR3 — for families filing an IR3 (any self-employment, rental, overseas, bright-line income). The WfF wash-up is a separate line item on the IR3 wash-up but settles through the same notice of assessment.

If the over-payment exceeds your refund, the residue becomes an IRD debt. You can pay it in full, request an instalment arrangement, or in hardship cases ask IRD to write off part of it.

The Five Situations That Cause Most Over-Payments

1 — Spouse’s income jumped mid-year. Most common cause. One partner’s WfF estimate was built from two people on PAYE. Mid-year one starts a side business, gets a second job, or has a big bonus. The family income jumps $20k+ above the estimate and the FTC over-taper kicks in.

2 — Bonus, back-pay, redundancy, or leave payout. Lump-sum taxable events that push family income over the abatement thresholds. PAYE handles the income tax, but WfF is calculated on full family income — so even if the bonus is paid with tax withheld, the WfF over-payment still emerges at year-end.

3 — Capital gains / FIF / bright-line property sale. Bright-line profit is taxable income. FIF FDR method produces taxable income every year even without a realisation event. These amounts have no PAYE withheld but add directly to family income for WfF purposes.

4 — Self-employment had a better year than estimated. Common in second-year contracting or consulting. You set your WfF estimate in April at last year’s number; business booms; the April-to-March profit is $30k higher. The WfF over-payment is 20c per dollar of that excess, so $30k over the abatement threshold means a $6,000 clawback.

5 — Forgetting to update IRD after a change. The most painful — if you knew your spouse’s situation changed and didn’t update the estimate in myIR, IRD has less sympathy if you later ask to stretch the repayment.

Worked Example — A $4,200 WfF Bill

Meet the Patels. Two children under 13, single-income family when they set up WfF in April 2025. Estimated family income for 2025-26: $78,000 (Arjun’s full-time PAYE salary).

Actual 2025-26 family income turns out to be $112,000:

• Arjun’s PAYE salary: $78,000 (as estimated)
• Arjun’s bonus for Q4: $9,000
• Priya returned to work part-time from August 2025: $18,000 of PAYE
• Priya had some freelance design work: $5,500 (sole trader, net after expenses)
• Bank interest on joint account: $1,500

WfF weekly entitlement during the year was based on $78,000 family income — ~$165/week for two children under 13. Actual entitlement based on $112,000 family income works out to ~$84/week (the 20c-per-$1 abatement cuts about $81/week off).

Over-payment: $81 × 52 weeks ≈ $4,212.

At IR3 time (the Patels have to file because of Priya’s sole-trader income), IRD calculates the $4,200 WfF over-payment as a debit on their wash-up. Their PAYE refund (from Priya’s BR-code secondary-job over-withholding) of $1,800 is applied first, leaving $2,400 owing to IRD.

If they’d updated the family income estimate in myIR in August when Priya started work, they’d have seen a $3,000+ reduction in the over-payment — weekly payments would have dropped immediately.

How to Prevent the Shock Next Year

Update your family income estimate in myIR whenever anything changes. Log in → “My Working for Families” → “Update my family income estimate”. The in-year rate drops the next payment cycle.

Overestimate slightly. If you deliberately set your WfF estimate $5,000 higher than you expect, you’ll either break even or get a small refund at square-up. Many families prefer this to the stress of a claw-back.

Use the WfF calculator proactively. When a bonus is announced or a spouse picks up work, run the Working for Families calculator with the new numbers. The weekly delta tells you how much to expect in the wash-up if you don’t update IRD.

For self-employed families — register a tax agent. The Extension of Time pushes your filing deadline to 31 March of the following year, giving you almost 12 months to find a payment arrangement for any WfF clawback surfaced at filing time.

What to Do If You’re Hit With a Bill

Option 1 — Pay in full inside myIR. Done, zero interest.

Option 2 — Instalment arrangement. Log into myIR, select the IR3 or auto-assessment notice, choose “Set up a payment plan”. IRD is generally flexible for WfF debts — weekly / fortnightly / monthly arrangements available. Interest still accrues (UOMI at 10.04% p.a. for 2026) but late-payment penalties don’t apply while the arrangement is active.

Option 3 — Hardship write-off. If paying the debt would cause serious hardship (can’t cover food / rent / essential bills), apply through myIR using form IR13. IRD can write off all or part of the debt. Approval rates are higher than people expect when genuine hardship exists.

Option 4 — Reduce the bill via deductions. If the over-payment is driven by self-employment income, your tax agent may find additional deductions that reduce family income for WfF purposes — home-office, depreciation, vehicle logbook. Always file before exploring hardship options — the bill you pay should be the correct one first.

Sources

• IRD — Working for Families end-of-year square-up
• IRD — Family income estimation
• IRD — Use of money interest (UOMI)
• IRD — Working for Families Act and updates for 2025-26

---

Model your WfF entitlement before the square-up surprises you

Use the Working for Families calculator with your actual expected family income — if the figure is lower than what IRD is paying you week to week, update your estimate in myIR today. For families facing an IR3 filing, pair it with the tax refund estimator to see whether your refund covers the WfF clawback or whether a payment arrangement will be needed.