Secondary Tax Codes

What Is Secondary Tax in New Zealand?

Secondary tax in New Zealand is a specific tax code applied to any income source other than your primary employment. It ensures that your secondary income is taxed at a rate commensurate with your total combined annual earnings. This mechanism prevents you from underpaying PAYE during the year and facing an unexpected tax bill from the Inland Revenue Department (IRD) at the end of the financial year.

Navigating the New Zealand tax system can often feel like walking a tightrope, especially when you introduce a second stream of income. Whether you are taking on a side hustle, working two part-time jobs, or receiving a benefit alongside wages, understanding secondary tax NZ rules is critical for your financial health. A common misconception is that this tax is a punitive measure designed to discourage extra work; in reality, it is a safeguard designed to protect you from tax debt.

This comprehensive guide will dismantle the myths surrounding secondary tax, help you identify the correct code to use, and explain how the Inland Revenue Department (IRD) reconciles your accounts at the end of the year.

Why Secondary Tax Feels High (Myth Busting)

One of the most pervasive myths in New Zealand personal finance is the idea that you pay “extra” tax on a second job. You will often hear colleagues say, “It’s not worth getting a second job because the taxman takes half of it.” This is fundamentally incorrect, yet the feeling is valid based on how our paychecks look.

The “Over-Taxation” Illusion

The reason secondary tax feels punitive is due to the mechanics of Pay As You Earn (PAYE). In your primary job, your tax is calculated on a progressive scale. The first $14,000 you earn is taxed at only 10.5%, and the next bracket up to $48,000 is taxed at 17.5%. This means your primary paycheck benefits from these lower “bottom rungs” of the tax ladder.

However, your second job is effectively “top-up” income. Because your primary job has already utilized your lower tax brackets, every dollar earned in your second job must be taxed at your marginal tax rate (the highest rate that applies to your total income). Consequently, you don’t see the blended, lower average rate on your second payslip that you see on your first. You see a flat, higher percentage deducted from the first dollar.

The Reality: It All Balances Out

It is crucial to understand that secondary tax is not a separate tax; it is simply a withholding rate. At the end of the tax year (31 March), the IRD looks at your total income from all sources as a single lump sum.

• If you earned $50,000 from Job A and $10,000 from Job B, the IRD sees a total income of $60,000.
• The tax due on $60,000 is exactly the same whether it came from one job or ten jobs.

Secondary tax codes merely ensure that the PAYE deducted from Job B is high enough so that when it is added to Job A, you haven’t underpaid.

How the Progressive Tax System Works

To master secondary tax, you must understand the New Zealand income tax brackets. As of the current financial year, the rates are generally structured as follows (always check the IRD website for the most current legislative changes):

• Up to $14,000: 10.5%
• Over $14,000 and up to $48,000: 17.5%
• Over $48,000 and up to $70,000: 30%
• Over $70,000 and up to $180,000: 33%
• Remaining income over $180,000: 39%

When you fill out an IR330 form for a second job, you are essentially telling your employer: “I have already earned enough money in my first job to fill up the lower buckets. Please tax this new money at the 17.5%, 30%, or 33% rate so I don’t owe money later.”

Choosing the Right Secondary Tax Code

Selecting the correct tax code is the responsibility of the employee, not the employer. Using the wrong code is the primary reason Kiwis end up with tax bills or having to wait for significant refunds. You will use the IR330 Tax Code Declaration form for this.

The Primary Codes (M Codes)

For your main job (the one that earns the most money), you will generally use code M (or M SL if you have a student loan). This code applies the tax-free threshold and lower tax brackets to your pay.

The Secondary Codes

For any subsequent source of income, you must select a secondary code based on what your total combined annual income will be. Here is the breakdown:

1. Code SB (Secondary Bottom)

Use this code if your total annual income from all jobs will be $14,000 or less. This taxes your secondary income at 10.5%.

2. Code S (Secondary)

Use this code if your total annual income from all jobs will be between $14,001 and $48,000. This taxes your secondary income at 17.5%. This is one of the most common secondary codes for part-time workers holding two positions.

3. Code SH (Secondary High)

Use this code if your total annual income from all jobs will be between $48,001 and $70,000. This taxes your secondary income at 30%.

4. Code ST (Secondary Top)

Use this code if your total annual income from all jobs will be between $70,001 and $180,000. This taxes your secondary income at 33%.

5. Code SA (Secondary Advanced)

Use this code if your total annual income from all jobs will be over $180,000. This taxes your secondary income at 39%.

The Consequence of Error

If you use code S (17.5%) for your second job, but your total income pushes you into the $50,000 range (which requires code SH at 30%), you will be underpaying tax on every dollar earned in that second job. By the end of the year, this discrepancy could result in a tax bill of several hundred dollars.

Tailored Tax Codes: Precision Taxation

Sometimes, the standard secondary tax codes are too blunt an instrument. This often happens if your income crosses a threshold mid-year, or if you have irregular income patterns. In these instances, the standard deduction rates might result in you significantly overpaying tax (reducing your weekly cash flow) or underpaying it.

What is a Tailored Tax Code?

A tailored tax code is a specific rate calculated by the IRD for your unique situation. Instead of a flat 17.5% or 30%, the IRD might instruct your employer to tax you at 21.4% (for example). This ensures that your PAYE deductions match your actual liability as closely as possible.

When Should You Apply for One?

You should consider applying for a tailored tax code (using form IR23BS) if:

• You are receiving a benefit or NZ Super and also working wages.
• You have large business losses carried forward.
• You have two jobs that, when combined, push you slightly over a threshold, but using the higher secondary code would result in a massive overpayment.

Applying for a tailored code puts the power back in your hands, ensuring you aren’t lending the government money interest-free via over-taxation, nor building up a debt.

Student Loans and Secondary Income

If you have a New Zealand student loan, the complexity increases slightly. The repayment obligation applies to your total income, not just your main job.

When selecting your secondary tax code, you must add the “SL” suffix if you have a student loan. For example:

• S SL (Secondary income, total earnings under $48k, with Student Loan).
• SH SL (Secondary income, total earnings between $48k-$70k, with Student Loan).

It is vital to note that secondary tax codes with “SL” attached will deduct both the secondary tax rate and the student loan repayment (currently 12% for income over the threshold). If you fail to add the SL code to your secondary job, you will almost certainly face a student loan repayment obligation at the end of the year.

The End of Year Wash-Up

Since April 2019, the IRD has moved to a system of automatic assessments. This is often referred to as the “wash-up.”

How the Process Works

Between late May and July, the IRD processes income information filed by employers throughout the year. They aggregate your income from your main job, your secondary job(s), and any investment income.

1. Calculation: They calculate exactly how much tax you should have paid based on that total figure.
2. Comparison: They compare this to the amount of PAYE actually deducted by your employers.
3. Result:
   • Refund: If you used a secondary code that was too high (e.g., using SH when you only earned $40,000 total), you will receive a refund automatically.
   • Bill: If you used a code that was too low (e.g., using S when you earned $60,000 total), or if you didn’t use a secondary code at all, you will receive a tax bill.

If the bill is small, the IRD may write it off (currently, amounts under $50 are usually written off). However, larger amounts must be paid by roughly February of the following year to avoid penalties and interest.

Avoiding the Bill

The best way to avoid a wash-up bill is to be conservative. If you are on the borderline between two tax brackets (e.g., earning around $48,000), it is safer to use the higher secondary tax code (SH) rather than the lower one (S). While your weekly pay will be slightly lower, you will likely receive a lump sum refund in May, which is financially safer than receiving a bill you haven’t budgeted for.

Conclusion

Secondary tax in New Zealand is not a penalty for hard work; it is a mechanism for accuracy. By understanding that your second job sits on top of your first in the progressive tax stack, you can appreciate why the deductions seem higher. The key to managing your personal finances with multiple income streams is selecting the correct code on your IR330.

Take the time to estimate your total annual income. If you are unsure, opt for a higher tax code or apply for a tailored tax code. A little administrative effort now prevents the shock of a tax bill later, allowing you to enjoy the fruits of your extra labor with peace of mind.

People Also Ask

Do I get secondary tax back in NZ?

Yes, if you have overpaid. Because secondary tax codes are estimates based on brackets, you may pay slightly more tax than required. After the tax year ends (31 March), the IRD automatically calculates your actual tax liability. If you paid too much via secondary tax, the difference is refunded to your bank account, usually between May and July.

Is secondary tax always 33%?

No. Secondary tax rates vary depending on your total annual income. While 33% (Code ST) applies if your total income is between $70,001 and $180,000, rates can be as low as 10.5% (Code SB) or 17.5% (Code S). The rate is determined by which tax bracket your combined income falls into.

How do I stop paying secondary tax?

You cannot stop paying tax on secondary income, as all income is taxable in New Zealand. However, if you leave your second job, you stop using the secondary code. If you leave your main job and your “second” job becomes your only job, you should update your tax code with that employer from a secondary code to a primary code (like M) to reduce the tax withheld.

What happens if I use the main tax code for two jobs?

If you use the primary tax code (M) for two jobs simultaneously, both employers will treat your earnings as if they are the first dollars you earned that year. They will both apply the low-tax thresholds. This will result in significant underpayment of tax, and you will almost certainly receive a large tax bill from the IRD at the end of the financial year.

Does a tailored tax code save me money?

A tailored tax code does not change the total amount of tax you are legally required to pay for the year; however, it improves cash flow accuracy. It prevents you from overpaying significantly during the year (giving the government an interest-free loan) or underpaying and facing a bill. It aligns your weekly deductions with your actual annual liability.

How do I change my secondary tax code?

To change your tax code, you must complete a new Tax Code Declaration form (IR330) and give it to your employer. You do not need to send this form to the IRD. Your employer is legally required to update your tax code in their payroll system once they receive the new form.