Teachers are set to lose out on child support payments and Kiwisaver contributions because of the ongoing Novopay fiasco.
The chaotic payroll system - which under or over paid staff since September - has created a huge headache for Inland Revenue.
Fairfax has learned the tax department has installed a senior manager and small teams of specialist payroll experts at the Education Ministry to sort out the mess.
With the end of the tax year looming, there are fears the problems could lead to reduced Work for Families payments for affected staff. Student loan repayments and Kiwisaver contributions are also expected to be miscalculated.
Revenue minister Peter Dunne admitted the debacle is "quite a nightmare" for IRD.
"It's not yet catastrophic - the major impacts don't come to the end of the tax year - but it's certainly a mess, certainly difficult, and it's going to take quite a lot of effort to resolve it."
But he said: "I think we are doing as best we can at the moment, given the situation."
The department is also working on a software program to model deduction patterns for individuals which would highlight discrepancies.
Just over 90,000 people come through the education ministry payroll into IRD, the largest employer in its records. Around a third of them have Kiwisaver deductions.
IRD relies on employers submitting a monthly Employer Monthly Schedule which lists PAYE, child support, student loan and Kiwisaver deductions and employer contributions.
Dunne said there are "significant" impacts for Working for Families payments. Entitlements are determined on the basis of the previous year's income, with data submitted at the end of the tax year in March and any wrong data will skew payments.
"If their income is over what it should be then their payments will be reduced. Or people could face having to make refunds," Dunne said.
He urged staff who believe they are affected to contact the IRD. Tax officials are working off the assumption that Novopay will remain in place.
Novopay minister Steven Joyce said last week that it is too difficult to dump the payroll system - and the Government aims to fix it.
A ministry briefing leaked last night suggests Novopay needs a fundamental redesign.
The software pays around 110,000 school staff - but up to 8000 have received the wrong wages since it was implemented in August.
Documents released by the Government last week showed the faulty system was almost scrapped in April last year because of a series of flaws and missed deadlines. It went ''live'' anyway in August, and problems began in September.
Joyce was brought in to fix Novopay last month and has announced a $500, 000 ministerial inquiry and a slew of extra resources.
But this week's pay round - the first cycle of the new year - is expected to be shambolic with a new secondary school teachers' collective agreement coming into play.
Teachers have already reported errors and Joyce has said he is not "massively confident."