What Is a Tax Code in New Zealand?

A tax code is a combination of letters that tells your employer, benefit provider or other income payer how much tax to deduct from your payments. In New Zealand, this deduction is generally known as Pay As You Earn (PAYE).

Your employer deducts PAYE from your gross salary or wages and pays it to Inland Revenue (IRD) on your behalf. The amount deducted depends on your income, the applicable tax rates and the tax code you provide.

Your tax code is not the same as your tax rate. A tax code helps determine the withholding applied to a particular income source, while your final income tax liability is calculated using your taxable income and the applicable tax rules.

Choosing the correct tax code is important. If too little tax is deducted during the year, you may have tax to pay later. If too much is deducted, you may receive a refund after your tax assessment.

How Do I Know What My Tax Code Should Be?

If you are asking, “What is my tax code?”, start by considering your employment and income circumstances. The correct code depends on whether you have one income source or multiple income sources, whether you have a student loan and whether you qualify for a relevant tax credit.

Before choosing a tax code, consider these questions:

• Is this your main or highest income source?
• Do you receive income from another employer or payer?
• Do you have a student loan?
• Are you eligible for the Independent Earner Tax Credit?
• Has your expected annual income changed?

Inland Revenue provides an online tool and an IR330 tax code declaration form to help individuals identify the appropriate code. Your personal circumstances should be checked against the current IRD guidance rather than selecting a code based on your job title alone.

Official guidance: What tax code should I use? – Inland Revenue

Common New Zealand Tax Codes Explained

New Zealand has several tax codes for different income and employment situations. The following table explains some of the common codes. It is a general guide, not a substitute for checking the IRD tax-code declaration.

Other codes apply to specific payment or employment situations. For example, WT is used for certain schedular payments, while CAE, NSW and EDW apply to particular types of work and eligibility conditions. Do not select these codes unless your circumstances meet the relevant IRD requirements.

Read more: About tax codes – Inland Revenue

What Is the Difference Between M, ME and M SL?

M Tax Code

M is commonly used for a person’s main income source. It is generally relevant where the person does not need a student-loan variation and does not qualify to use the ME code.

ME Tax Code

ME is used by eligible individuals who qualify for the Independent Earner Tax Credit. Eligibility depends on Inland Revenue’s requirements, including income and other qualifying conditions. Having one job does not automatically mean you qualify.

M SL Tax Code

M SL is generally used for a person’s main income when student loan deductions are required. The SL indicates that student loan repayments should be deducted from the relevant income.

ME SL Tax Code

ME SL combines the relevant ME tax-code treatment with student loan deductions. It is only appropriate where the individual meets the requirements for the ME code and has a student loan.

If you have repaid your student loan in full or your circumstances change, you may need to provide your employer with an updated tax code declaration.

What Is a Secondary Tax Code in NZ?

If you receive taxable income from more than one source at the same time, you may need a secondary tax code for your additional income. For example, you might have a full-time job and also work part-time for another employer.

Your main income source is generally your highest income source. Other income sources may be treated as secondary income. The appropriate secondary tax code depends on your estimated annual income from all sources.

Secondary tax is a withholding method. It helps account for the fact that your combined income may fall into higher tax brackets. It does not automatically mean you are paying an additional final tax on top of your actual income tax liability.

Secondary Tax Codes and Income Bands

The following table shows the secondary tax codes and income bands published by Inland Revenue. The rates below are before ACC earners’ levies.

These bands are based on estimated annual income from all sources, not simply the amount earned from the second job. Check the current Inland Revenue guidance before choosing a code, particularly if your income changes during the tax year.

Official reference: Inland Revenue – Secondary tax codes and rates

How Does a Student Loan Affect Your Tax Code?

If you have a New Zealand student loan and earn income through employment, your tax code may need to include the SL indicator. This tells your employer to deduct student loan repayments where required.

If you have more than one income source, student loan repayment obligations may also apply to your additional income. The correct treatment depends on your income and circumstances.

If you repay your student loan in full, make sure you check whether your tax code needs to change. You should provide your employer with an updated declaration where required.

How Do I Change My Tax Code in New Zealand?

You may need to change your tax code when your employment or financial circumstances change. Examples include starting a second job, changing your expected annual income, taking out a student loan or paying off your student loan.

In general, the process is:

1. Review your circumstances: Check your main income, other income sources, student loan status and eligibility for relevant tax credits.
2. Check the correct code: Use Inland Revenue’s online guidance or IR330 tax code declaration.
3. Complete the declaration: Fill in the required details and select the appropriate tax code.
4. Give it to your employer or payer: Your employer or income payer uses the information to calculate deductions.
5. Review your payslip: Check that the tax code and deductions reflect your updated circumstances.

You can find the current declaration and guidance on the official Inland Revenue website: Inland Revenue forms and guides .

What Happens If I Use the Wrong Tax Code?

Using an incorrect tax code can result in too much or too little tax being deducted from your income. This may affect your take-home pay and the amount you owe or are due to receive after your end-of-year tax assessment.

Possible consequences include:

• Under-deducted tax: You may have tax to pay after Inland Revenue reviews your income for the year.
• Over-deducted tax: You may receive a refund after your tax assessment, depending on your circumstances.
• Incorrect student loan deductions: Your repayments may not be deducted correctly if your tax code does not reflect your loan status.
• Payroll corrections: Your employer may need updated information to apply the correct deductions going forward.

If you do not provide your employer or payer with the required IR330 tax code declaration, Inland Revenue states that the non-declaration rate of 45% may apply. Check the current IRD requirements if you have not supplied a declaration.

Do Contractors and Self-Employed People Need a Tax Code?

Not everyone who earns income in New Zealand uses an employee PAYE tax code in the same way.

If you are self-employed, you generally manage your income tax obligations through your annual tax return and may need to make provisional tax payments depending on your circumstances.

Contractors receiving schedular payments may have tax deducted at source and may need to provide the relevant tax declaration for schedular payments. The applicable rules depend on the type of work and payment arrangement.

Dividends and interest generally use resident withholding tax (RWT) rather than an employee PAYE tax code.

If you are unsure how your income should be treated, check the relevant Inland Revenue guidance or speak with an accountant.

When Should You Review Your Tax Code?

Your tax code should reflect your current circumstances. It is worth reviewing it when:

• You start a new job.
• You take on a second job or another taxable income source.
• Your expected annual income changes significantly.
• You take out a student loan or repay it in full.
• Your eligibility for the Independent Earner Tax Credit changes.
• You begin receiving a benefit, pension or other taxable payment.

Reviewing your tax code can help ensure the correct amount of tax is deducted throughout the year and reduce the risk of an unexpected tax bill.

Frequently Asked Questions About NZ Tax Codes

About DFK Orb360 O’Halloran

DFK Orb360 O’Halloran provides accounting, taxation and business advisory services to businesses in New Zealand. Our team supports business owners with financial reporting, tax compliance, accounting and business decision-making.

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Disclaimer: This article provides general information about New Zealand tax codes and PAYE. It is not personalised tax, legal or financial advice. Tax treatment depends on individual circumstances and current legislation. Always check the latest Inland Revenue guidance or consult a qualified professional before making decisions about your tax position.