More than 48,000 people receiving the tax credit from Labour's Working For Families programme have been overpaid.
Half of those overpaid owe more than $1000. Many are being asked to pay 14% interest on repayments.
The Federation of Family Budgeting Services says the problem arises when recipients earn extra money, but their tax credit is calculated across the entire year.
Chief executive Raewyn Fox says even those who informed the Inland Revenue of changes to their income, have been penalised.
IRD's says its computer system has improved and overpayments are falling.
The agency says overpayments can be written-off in cases of hardship.