Almost 50,000 people who get a tax credit from the Labour government's Working For Families programme have been overpaid.
Of those who have been overpaid half owe more than $1000 and many were asked to pay 14 percent interest on repayments, Radio New Zealand reported.
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 informed Inland Revenue of changes to their income had been penalised.
IRD said its computer system had improved and overpayments were falling.
The agency said overpayments could be written-off in cases of hardship.
