People overpaid on the Government's Working For Families programme are being asked to pay 14 per cent interest on repayments, despite keeping the Inland Revenue informed of changes to their income.
Almost 50,000 people who get a tax credit from the Working For Families programme have been overpaid.
And of those who have been overpaid half owe more than $1000 and many were asked to pay 14 per cent interest on repayments, Radio New Zealand reported.
One single mother, who had changed jobs through the year, said she was "gutted" to receive a request for repayment of $1900.
She had assumed that because she was informing Inland Revenue about changes to her income that it would be adjusting her programme payments.
She was now paying off her debt with her credit card because it was cheaper.
The Federation of Family Budgeting Services said the problem arose when recipients earned extra money, but their tax credit was calculated across the entire year.
Chief executive Raewyn Fox said even those who told Inland Revenue about changes to their income had been penalised.
The problem was too common, she said.
Inland Revenue spread income over full tax year and averaged it out, so a person would be overpaid for the part of the year they were on a lower income.
They could opt for one payment at the end of the tax year, but that was not an option for many families, Ms Fox said.
Inland Revenue group manager of assistance, David Udy, said it took pro-active action if people's income changed drastically and affected their Working For Families entitlement.
Given there were nearly 400,000 people in the scheme the department was doing a pretty good job, he said.
The department had made improvements to its computer system and the number of overpayments had decreased from 40 per cent to 27 per cent for the year to the end of March 2007.
In nearly three quarters of overpayments the amount was $94 or less.
He said that in some hardship cases overpayments could be written off.
