(NZ tax codes – 7 minute read)
Kia ora NZ accounting fans!
31 July 2024 has come and gone, so its time for us to update the calculations of the NZ tax codes. We’ve decided to go and publish a brand-new article (you can still find the old one here) to reflect these changes.
You’ll need to determine the correct tax code every time you start a new job. You have to fill out the IR 330 form that has the little flowchart diagram thingies that tell you what your tax code is.
So before we get into all the calculations, let’s answer the biggest question:
What are NZ tax codes?
Tax codes are codes that your employer uses to determine the amount of tax they need to deduct from your wages. Generally speaking, tax codes can be grouped into three categories, M, S and Special Tax Codes.
Please note that you have to supply a different tax code for each source of employment you have. You may not necessarily be using the same tax code for each source of employment.
As such tax codes ONLY apply if you are an employee on PAYE with an employer. Tax codes DO NOT determine the overall amount of tax you have to pay each financial year. If you want to review your new tax brackets (effective 31 July 2024) you can check out the Budget Tax 2024 article over here.
Let’s take a look at what the tax codes are:
M category of tax codes
The M tax code is used if this income source will be your largest source of income from salary and wages. M also applies to a main benefit received from Work and Income (other than a student allowance, NZ super or Veteran’s pension).
M
If your annual net income is NOT between $24,000 and $70,000, then M is the code for you.
ME
If your annual net income is between $24,000 and $70,000 then ME is the code for you. This is to reflect the revised Independent Earner Tax Credit (IETC) thresholds. Basically you get some tax credits back at the end of the financial year. Yay! Less taxes!
Please note that if you don’t qualify for IETC even if you are earning within this threshold, you need to use ‘M’. If you or your partner are:
- Entitled to Working for Famlies payments or an overseas equivalent
- Or you receive a main benefit, NZ Superannuation, Veteran’s Pension or overseas equivalent
You don’t qualify for IETC. Please use the ‘M’ code.
S category of tax codes
The S tax code is used if the income source is your secondary (NOT main) source of income. This applies to all other forms of salaried work that makes less than your main salaried income.
SB
Annual PAYE income of less than $15,600 a year from all PAYE income sources, then you are SB.
S
Annual PAYE income between $15,601 and $53,500 from all PAYE income sources, then you are S
SH
Annual PAYE income between $53,501 and $78,100 from all PAYE income sources, then you are SH
ST
Annual PAYE income between $78,101 and $180,000 from all PAYE income sources, then you are ST
SA
Annual PAYE income of $180,001 and above, then you are SA
Special NZ tax codes
Special NZ tax codes are relevant for specific work types.
CAE
For casual agricultural worker, shearer or shed-hand. Casual agricultural workers are people in casual seasonal work on a day-to-day basis, for up to 3 months.
EDW
Election day workers. Election day workers are people working for the elections for the period of advanced voting and election day only.
NSW
Recognised seasonal workers. If you are a recognised seasonal worker or hold a work visa as foreign crew of a vessel fishing New Zealand waters, use the NSW code.
Recognised seasonal workers must be employed by a registered employer under the Recognised Seasonal Employers’ Scheme and
are employed in the horticulture or viticulture industries. For more information, please contact Immigration NZ.
STC
A tailored tax code. This will only apply in specific circumstances. For example: you’re earning more on your secondary PAYE income (with an ‘S’ code) than you are on your main income (with an ‘M’ code). This means tax is being deducted at a higher rate than it should be. You can apply for a tailored tax code to correct the amount of tax deducted on your secondary PAYE income.
STC also applies to all other situations where the regular tax codes mean not enough or too much tax is deducted from your pay.
What about SL?
SL stands for ‘Student Loan’ – basically you slap an SL at the back of your tax code if you have a student loan from the NZ government – this tells your employer to make the necessary deductions from your salary to pay off your student loan as well.
For example, if you chose the ‘M’ tax code and have a student loan, your tax code would be ‘M SL’.
How much am I paying in taxes then?
Great question, which I’m sure is why you’re reading this article in the first place.
Once you’ve provided the tax codes, your employer will deduct an amount from your paycheck based on your expected annual earnings. For M and ME – these are the percentages that will be deducted from income in each tax bracket (income threshold):
| % of deduction | Income thresholds |
| 12.1% | $0 – $15,600 |
| 19.1% | $15,601 – $53,500 |
| 31.6% | $53,501 – $78,100 |
| 34.6% | $78,101 – $142,283 |
| 33.0% | $142,284 – $180,000 |
| 39.0% | $180,000 and above |
Let’s say Tui earns $104,000 as a senior lecturer. She receives gross pay of $4,000 every fortnight. She has a tax code of ‘M’ with her employer. Therefore she gets her gross pay deducted by about 24.85% or $994.66 before receiving her net pay. Note that we have not included any kiwisaver deductions yet.
The percentages provided in the table are for income that falls within those brackets. Since tax is calculated progressively, the amount actually deducted is an average of the tax rates that you will get charged in each bracket. You can estimate your PAYE tax deductions using the IRD PAYE calculator here.
Up to $142,283 of income is liable for ACC deductions. After that, you’re only getting deducted for income tax. Hence why the rates drop from 34.53% to 33% after the $78,101- $142,283 bracket.
If you are eligible for IETC (earning between $24,000 to $70,000) then your ME/SE tax code reduces your PAYE deductions by $10 per week for income between $24,000 and $66,000. For each extra dollar earned over $66,000, IETC reduces by $0.13, reaching a nil entitlement at $70,000. Basically it means you pay less tax overall.
What happens if I have a student loan on an M code?
If you have a student loan, you’ll be using the ‘SL’ prefix at the end of your tax code (M SL, ME SL). The standard deduction rate for this is 12% over every dollar earnings over the pay period repayment threshold.
The repayment threshold is currently set at $24,128 (valid as of 31 July 2024 – for the FY 2025). This means that for earnings above the period repayment thresholds, there are 12% of student loan deductions. The period thresholds are as follows:
| Weekly | $464 |
| Fortnightly | $928 |
| 4- Weekly | $1,856 |
| Monthly | $2,010.66 |
Using Tui as an example again, her fortnightly gross pay amounts to $4,000. So for every dollar earned above the fortnightly threshold of $928, 12% is paid to her student loan. This is (4,000 – 928) X 12% = $368.64. This is on top of $994.66 of PAYE deductions.
What about my secondary employment?
If you are in secondary employment, your PAYE rates work as follows:
| Income Thresholds | Tax Codes (no student loan) | PAYE rate | Student loan tax codes | PAYE rate + student loan deduction |
| $0- $15,600 | SB | 12.1% | SB SL | 24.1% |
| $15,601 – $53,500 | S | 19.1% | S SL | 31.1% |
| $53,501 – $78,100 | SH | 31.6% | SH SL | 43.6% |
| $78,101 to $180,000 | ST | 34.6% | ST SL | 46.6% |
| $180,001 and upwards | SA | 40.6% | SA SL | 52.6% |
The main difference is that if you’re on a student loan with the ‘S’ codes, the deduction does not happen above a threshold. The extra 12% is added into the PAYE rate. The assumption is that if you’re on an ‘S’ code income, you’re making enough from your ‘M’ code income to be meeting the repayment thresholds. You can’t have an ‘S’ code income if you don’t have an ‘M’ code income.
What if I’m self-employed?
If you’re self-employed or run your own business, your tax codes don’t change. Remember that tax codes are only relevant to PAYE income. If you are making your main income from self-employment and you take on a PAYE part-time job. That PAYE part-time job still counts as your ‘Main PAYE income’ and hence you have to use the ‘M’ code for it.
The ‘S’ code only applies if you have a main source of PAYE income. Don’t use the S code unless you’re already using the M code for a main PAYE income.
Why is it important to choose the correct NZ tax codes?
First off, let’s clear up a myth – your tax codes don’t determine how much tax you ACTUALLY pay. It determines how much of your pay gets deducted for taxes. At the end of the tax year, IRD still calculates how much tax you owe based on your reported income.
Any PAYE deductions made on your income count as ‘TAX CREDITS’ that will reduce the amount of tax you have to pay. If your deductions are higher than the actual tax you need to pay, you get a refund. If it is lower, you have to pay the balance. It still is important to choose the correct tax code.
Not choosing correctly can result in:
- Deductions are too high – which can impact your cash flow until the end of the tax year (you have to wait until the tax year ends to get your refund)
- Deductions are too low – which means you have to fork out extra money (which you haven’t budgeted for) to pay the balance
When should I be changing NZ tax codes?
If say, for example the part-time job you are working in becomes full-time – you will want to change the tax code from S to M.
If you suddenly had a reduction in wages (due to getting laid off) for your main job and your side hustle is suddenly making more money – you will want to change that S to an M. Every time there is a change in your employment situation, you will want to review your tax codes to ensure that you are paying the right amount of taxes.
If you got a promotion at your side hustle, and now your side hustle is your main hustle, you will also need to change tax codes.
Am I actually paying MORE taxes than I should?
Err, not necessarily – taxes are calculated on a financial year, not a calendar year and your actual earnings at the end of the financial year (1 April to 31 March) may differ from the expected annual income on your contract. IRD does a square up of your annual income over the last financial year to work out your tax position.
Either way, the IRD would rather have you overpay them than underpay them – that way they ensure that you meet your tax obligations and don’t owe them money.
Plus this creates the additional psychological reward of getting a fat refund at the end of the tax year (even if the money was rightfully yours to begin with). Yay!
If you didn’t get anything else from this article – just remember two things:
- You may get a tax refund at the end of the financial year
- NEVER EVER PAY ANYONE TO DO YOUR TAX REFUNDS – if you’re only earning PAYE salaries, this is done for your automatically
Now the next time you feel like whinging about taxes, you have numbers to back you up!
But on a more serious note – at the very least this will help you roughly estimate how much taxes you are paying during the year and how much you may receive in the form of a refund (or how much you have to pay up!) :).
One last thing for FY2025!
Financial Year ending 31 March 2025 is going to be a real head scratcher! This is because from 1 April 2024 to 31 July 2024, we’ll be on the old system of tax brackets. From 31 July 2024 onwards, we’ll be on the new system of tax brackets. Hence during the year, there will be a compound tax bracket just for FY2025!
This compound tax bracket basically combines the old and new system. I’m not going to bore you with the details. Fortunately, the shifting in the tax bracket should result in a refund for you at the end of 31 March 2025.
Stay informed! And most of all:
Stay positive!