Different Tax Codes in New Zealand and Who They Apply To

New Zealand has a variety of tax codes, each designed for specific circumstances. These codes vary based on an individual’s earnings and the nature of their income—main or secondary.

Main Tax Codes

You’ll likely encounter the “M” and “ME” codes most often. These codes are designed for those whose earnings come primarily from one job.

• M: This means this occupation is the employee’s main source of income. Therefore their PAYE for their earnings should be calculated according to each relevant tax bracket, and not a flat tax rate. This is the most common tax code that you’ll see.

• ME: This also means this occupation is the employee’s main source of income, but they earn less than $48,000 per year. Therefore their PAYE for their earnings should be calculated according to each relevant tax bracket, and not at a flat tax rate. The special designation helps determine the employee’s eligibility for benefits such as the Independent Earner Tax Credit (IETC), which could allow them to receive up to a $10 tax credit per week.

Secondary Tax Codes:

Any code starting with an “S” indicates a secondary income. So, if an employee is on the M code for their main job and picks up a second source of income, that extra income will be taxed under a different code. The rate for this secondary tax code is determined based on their main income. 

• SB: This means this occupation is the employee’s secondary source of income, but they earn $14,000 or less across all sources of income, and therefore their PAYE should be taxed at a flat rate of 10.5% (excluding the ACC Earners’ Levy) for any payments.

• S: This means this occupation is the employee’s secondary source of income, but they earn between $14,001 and $48,000 across all sources of income, and therefore their PAYE should be taxed at a flat rate of 17.5% (excluding the ACC Earners’ Levy) for any payments.

• SH: This means this occupation is the employee’s secondary source of income, but they earn between $48,001 and $70,000 across all sources of income, and therefore their PAYE should be taxed at a flat rate of 30% (excluding the ACC Earners’ Levy) for any payments.

• ST: This means this occupation is the employee’s secondary source of income, but they earn between $70,001 and $180,000 across all sources of income, and therefore their PAYE should be taxed at a flat rate of 33% (excluding the ACC Earners’ Levy if relevant) for any payments.

• SA: This means this occupation is the employee’s secondary source of income, but they earn over $180,000 across all sources of income, and therefore their PAYE should be taxed at a flat rate of 39% for any payments.

Here is a table of what secondary income will be taxed based on their annual main income.

Other Tax Codes

Not all jobs fit neatly into the categories of “main” or “secondary” income. These special tax codes ensure that your unique employment circumstances are accurately reflected in your tax withholdings.

• CAE: This relates to Casual Agricultural Employment, however, do not get this confused with the NSW tax code. If you employ an individual for agricultural work for a short fixed-term period, then their tax code should likely be CAE. This means their PAYE is taxed at a flat rate of 17.5% (excluding the ACC Earners’ Levy) for any payments, similar to the S tax code.

• NSW: This relates to Non-resident Season Workers. This is primarily used for individuals under the Recognized Seasonal Workers (RSE) scheme, but it could also apply to other industries if the employee is employed fixed-term as a non-resident. This means their PAYE should be calculated at a flat rate of 10.5% (excluding the ACC Earners’ Levy) for any payments, similar to the SB tax code.

• EDW: This relates to Election Day Workers. This would not relate to most forms of employment, however it means that their PAYE should be calculated at a flat rate of 17.5% (excluding the ACC Earners’ Levy) for any payments, similar to the S tax code.

Student Loan

• SL: This is not a tax code in itself, but it simply means the employee has a student loan. The SL can be added on to any “M” or “S” tax codes, depending if the employee has a student loan or not.

Tailored Tax Code

It’s worth noting that even with the correct tax code, the exact tax amount is rarely deducted unless you’re receiving a fixed, consistent income. Tax codes are designed to estimate your annual earnings, and if your work schedule or income varies, this estimate can be off the mark. That’s why most people end up with either a tax bill or a refund at the end of the tax year.

If you find yourself consistently receiving a tax bill, you might consider applying for a tailored tax code through the IRD. This allows for a more accurate estimate of your annual income, reducing the likelihood of an end-of-year tax bill.

How to Determine the Correct Tax Code for Employees

Determining the correct tax code is primarily the employee’s responsibility. While employers can guide them on where to find the necessary forms, it’s really up to the employee to figure out their tax code and inform their employer. 

If you’re an employee and need to know how to make sure your correct tax code is set up when you onboard, here’s how to go about it:

1. Start with the IRD: Your first stop should be the Inland Revenue Department (IRD). They offer a detailed guide and a tax code declaration form, known as the IR330. While it’s not the employer’s role to choose your tax code, they can point you to where you can find this form.
   • Online Option: The IRD website has an online tool that asks a series of questions about your income and circumstances. At the end of the questionnaire, it suggests the most appropriate tax code for you.
2. Employee Declaration: Once you know your tax code, it’s your job to inform your employer or the appropriate HR department. This is often done as part of a new employee file. If you don’t need to fill out an employee file, make sure to communicate your tax code to your employer through other means, whether that’s through an email or even just a text if that’s how you communicate with your employer.
   • Paper or Digital Forms: Whether your employer uses paper forms or digital platforms, you might need to submit the IR330 form to make it official. 
3. Review and Update: Life changes, like getting a student loan or a second job, can affect your tax code. Make it a habit to review your tax code when significant changes happen.
4. IRD Notifications: If you end up using the wrong tax code, the IRD will first notify you. If no change is made, they’ll then notify your employer. 

By following these steps, you can ensure that you’re on the most appropriate tax code, making tax time a breeze and keeping your payroll smooth.

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