Tax Codes in NZ Explained

When starting a new job you’ll need to know your tax code. Tax codes are labels used by employers to determine how much tax to deduct from your earnings before passing the tax on to the Inland Revenue Department (IRD). Choosing the right tax code ensures you pay the right amount of tax throughout the year, minimising the risk of an unexpected tax bill.

Who Are Tax Codes For?

A tax code is required for any source of income that is taxed before you receive it – such as salary, wages, benefits, interest and seasonal workers. Each separate pre-taxed income sources should have tax code. Self-employed income, where you invoice your clients directly and pay your own tax, does not require a tax code.

Tax codes align with various sources of income and personal circumstances such as primary employment, secondary employment, student loans, and independent earner tax credits. Using the right tax code depends on whether your job is primary or secondary, whether you have a student loan, and if you qualify for any tax credits.

The Independent Earner Tax Credit

The Independent Earner Tax Credit (IETC) is a tax credit available to individuals in New Zealand who are in full-time employment and earn a total annual income between $24,000 and $70,000. To be eligible you must not also receive certain other government assistance like Working for Families benefits or student allowances. This credit is designed to provide financial relief to those who meet the criteria by reducing the amount of income tax they need to pay.

If you are eligible for the Independent Earner Tax Credit it will effect which tax code you select.

When to Use the IR330 Tax Code Form

When starting a new job or if there has been a change in your employment situation that affects your tax code, you should complete an IR330 form. After filling it out, you give it to your employer to ensure that the correct amount of PAYE tax is deducted from your earnings.

The IR330 tax code form should be completed for each separate source of income, and the appropriate tax code should be chosen based on individual circumstances.

For contractors earning schedular payment income, a different form, the IR330C, should be used; allowing them to declare their tax code based on the type of contracting work they do.

Download the IR330 Tax Code Form

Main Income Tax Codes

These codes apply to your primary job or main source of income:

• M: Use this code if you are earning from a primary job and are not eligible for the independent earner tax credit. It covers cases where your earnings are your main or sole source of income.
• ME: Applicable if your main job is your only source of income and you are entitled to the independent earner tax credit. This is suitable for individuals earning between $24,000 and $48,000 from a single source.
• M SL: If you’re paying back a student loan, you should choose this tax code for your primary income. This ensures that enough is deducted to cover your repayments.
• ME SL: Select this if you have a student loan and are eligible for the independent earner tax credit while working in your primary job.

Secondary Income Tax Codes

These codes are useful if you have a secondary job alongside your main employment:

• SB: Use this code for secondary employment when your total annual income across all jobs is not exceeding $15,600. Ideal for small side gigs or supplementary sources of income.
• S: This code is suitable when your combined income falls between $15,601 and $53,500. Use it when secondary earnings contribute significantly to your annual earnings but are not your main source.
• SH: Applicable for those with a total income between $53,501 and $78,100. It relates to secondary earnings above a modest threshold.
• ST: Choose this code if your earnings from all jobs is between $78,101 and $180,000. This ensures adequate tax deductions from substantial income levels.
• SA: This stands mostly for high earners in secondary jobs (exceeding $180,000). It’s essential from the 2021–2022 income year onward.
• SB SL, S SL, SH SL, ST SL, SA SL: These extend the SB, S, SH, and ST codes with the addition of a student loan repayment requirement. Ensure you’re using one of these if you’re repaying a loan.

Additional Tax Codes

• WT: This is used by contractors earning schedular payment income who are responsible for their own tax, particularly when self-managing their tax via IR330C form.
• CAE: This is used for salary or wages for employment as a casual agricultural employee.
• EDW: Used for salary or wages for employment as an election day worker.
• NSW: This code is for wages paid to non-resident seasonal workers.
• STC: This code is used for the self-calculating method, which allows you to work out how much tax you should pay on your income.

Each tax code is uniquely structured to cater to different employment situations and financial commitments. Understanding these codes enables you to manage your finances more accurately and avoid the pitfalls of under or overpaying taxes.

How Solo Can Help

When you earn multiple sources of income, keeping track on your taxes can be overwhelming. Solo simplifies tax for self-employed kiwis with multiple sources of income. Effortlessly manage all your income sources and taxes in one place with Solo.