Calculate the taxable and tax-free amounts
If you pay a travelling allowance because there is not adequate public transport, only the first $5 of the daily travelling allowance is taxable. Any additional amount is tax-free.
For all other situations the tax-free amount is the employee’s additional costs. This is the actual cost of travelling between home and work – the employee’s usual transport costs.
You can use our kilometre rates if you don’t have the actual cost.
Pay the employee the travelling allowance
Add the tax-free amount of the allowance to your employees’ net salary or wages (after PAYE) when you pay them.
Add any taxable amount to your employee’s gross pay and make PAYE deductions as required. They will be paid the net amount as part of their normal pay.
Account for the travelling allowance
- Do not show the tax-free amount on your Employer monthly schedule (IR348).
- Show the total amount of the tax-free allowance paid in your wagebook.
- Show the taxable amount on the employment income information as part of the employee’s gross pay.