Know your obligations for employee share schemes

When you are completing your payroll activity, you need to file employment information about the ESS benefits you provide to your employees, even if you choose not to deduct and pay tax on the benefits.

Non-reporting of ESS benefits is a tax shortfall and this may lead to shortfall penalties.

When you file, whether it’s in myIR, by paper, or through payroll software you’ll need to include: 

• the employee's name and IRD number 
• the taxable value of the ESS benefit (in the ESS field). Also include this amount in the Earnings not liable for ACC earners’ levy field
• the total tax, and any student loan, deducted from the benefit. 

Reporting previous years ESS benefits 

If you have not told us about ESS benefits your company provided in previous years, you will need to let us know by making a voluntary disclosure. 

Your tax withholding obligations depend on whether the ESS benefit is provided in shares or cash.

If an ESS benefit is in shares, there are two options when it comes to deducting and paying tax. 

Option 1: You deduct and pay the tax on ESS benefits when you're completing your payroll. You treat the ESS benefits as lump sum payments, also known as extra pay.  

Option 2: Your employees pay tax after the end of the tax year, once they’ve received their automatic income tax assessment or individual income tax return (IR3)

It is best practice to let your employees know about the tax obligations and remind them they will have to pay any tax owing on ESS benefits at the end of the tax year.  

If an ESS benefit is in cash, it is an extra pay, and you must withhold tax.

Inland Revenue has more information about employee share schemes.