About 240,000 people were mistakenly sent a letter from Inland Revenue informing them their Working for Families payments had been cancelled.
The Notice of Entitlement letter told recipients they would not receive any payments from April 1.
An Inland Revenue spokeswoman confirmed to the Herald "around 240,000" letters were sent, and they were investigating how it came about.
"Essentially, the letters shouldn't have gone and we're sorry for any distress caused," she said.
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On social media, Inland Revenue posted an explanation, saying no payments had been cancelled, and an apology for the confusion caused.
"If you have received a notice implying that your Working for Families entitlements will cease as of 1 April 2020, please ignore it.
"You can refer to your most recent Notice of Entitlement which includes the amount that you will continue to be paid.
"Apologies for any confusion this may have caused."
The post has drawn hundreds of comments, many upset at the stress caused and the timing with the Covid-19 lockdown.
"What a stressful time to stuff up," commented one person.
"I freaked out thinking we were going to be homeless because we now rely on this money now because of this Covid-19 and how it has affected hubbies work.
"I just hope you send another letter to everyone because not everyone will have Facebook and see this."
• Covid19.govt.nz: The Government's official Covid-19 advisory website