PAYE Tax System - Learning Center
💼 What is PAYE?
Pay As You Earn (PAYE) is New Zealand's system for deducting income tax from salaries and wages. Under PAYE, your employer calculates and deducts tax from your pay before you receive it, then pays this directly to Inland Revenue (IRD) on your behalf. Alongside the income tax itself, PAYE also collects your ACC earners' levy and, where they apply, your KiwiSaver contributions and student loan repayments, so most of what you owe is handled automatically every payday rather than in a lump sum at the end of the year. Because every deduction is worked out against the tax code you give your employer on an IR330 form, the amount that actually lands in your bank account, your take-home pay, depends on getting that code right and understanding how each piece is calculated. This guide walks you through the current tax rates, the tax codes, ACC, KiwiSaver and student loan deductions, and how to read every line of your payslip so you can check you are being paid correctly.
History of PAYE in New Zealand
PAYE was introduced in New Zealand in 1958, replacing a system where taxpayers paid their income tax in annual or quarterly lump sums. The change made tax collection more efficient and reduced the burden on individual taxpayers.
Today, PAYE is the primary method of tax collection in New Zealand, accounting for the majority of income tax revenue. Over 2 million New Zealanders have tax deducted through PAYE every pay period.
How PAYE Works: The 7-Step Process
Every pay period, your employer follows this process:
- Calculate gross pay: Your total earnings before any deductions
- Deduct PAYE tax: Based on your tax code and income level
- Deduct ACC Earners' Levy: Currently 1.75% for workplace injury cover
- Deduct KiwiSaver contributions: If you're enrolled (3%, 4%, 6%, 8%, or 10%)
- Deduct student loan repayments: If applicable, 12% above threshold
- Calculate net pay: What's left after all deductions
- Remit deductions to IRD: Usually within two working days
As an employee, you must provide your employer with the correct tax code using an IR330 form. Your employer is then responsible for calculating and deducting the correct amounts. If they make an error, they're liable - not you.
Understanding Tax Codes
Your tax code tells your employer how much tax to deduct. Choosing the right code is crucial to avoid over-paying or under-paying tax.
Primary Income Tax Codes
| Tax Code | When to Use | Features |
|---|---|---|
| M | Main job, no student loan | Most common code for primary employment |
| ME | Main job, IETC eligible | Income $24k-$70k, gets up to $520/year tax credit |
| MSL | Main job, with student loan | Deducts 12% above $24,128 threshold |
| M SL | Main job, student loan, IETC | Combines IETC credit and student loan deductions |
Secondary Income Tax Codes
You use a secondary tax code on every job except your main one. You choose the code from your total expected income across all your jobs, so the second job is taxed at the marginal rate your combined income reaches, not a single flat rate. The idea that every second job is taxed at a high flat rate is a common myth.
| Tax Code | Total income from all jobs | Tax Rate |
|---|---|---|
| SB | $15,600 or less | 10.5% |
| S | $15,601 to $53,500 | 17.5% |
| SH | $53,501 to $78,100 | 30% |
| ST | $78,101 to $180,000 | 33% |
| SA | More than $180,000 | 39% |
If you have a student loan, add "SL" to your secondary code (for example S SL or SH SL) so a further 12% is deducted on income above the repayment threshold.
Using the wrong tax code can result in under-paying or over-paying tax through the year, leading to a bill or a wait for a refund. If you have two jobs, use an M code for your main job and the secondary code that matches your total income for your second job (SB, S, SH, ST or SA). If you give no tax code at all, your employer must deduct the no-notification rate of 45%.
Special Tax Codes
- CAE: Casual Agricultural Employee - special rate for seasonal farm workers
- EDW: Election Day Worker - for one-off election work
- NSW: No Declaration, Special tax code W - 45% rate when no tax code provided
- ND: Non-Declaration - 45% when employee doesn't complete IR330
Components Deducted Through PAYE
1. Income Tax
Progressive tax based on your income level, ranging from 10.5% to 39%. This is the main component of PAYE and varies depending on how much you earn.
2. ACC Earners' Levy
Currently 1.75% of gross earnings, the ACC Earners' Levy provides comprehensive injury cover for all New Zealanders, whether injuries occur at work or in your personal time. This rate is reviewed annually.
3. KiwiSaver Contributions (Optional)
If you're enrolled in KiwiSaver, your contributions (3%, 3.5%, 4%, 6%, 8%, or 10% of gross pay) are deducted through PAYE. Your employer also contributes a minimum of 3%.
4. Student Loan Repayments
If you have a student loan, 12% of your income above $24,128 per year is automatically deducted. This only applies to income earned in New Zealand.
Gross pay is your total earnings before any deductions. Net pay (take-home pay) is what remains after PAYE, ACC, KiwiSaver, and student loan deductions. Your employment contract specifies gross pay, not net.
📊 Tax Brackets and Calculations
New Zealand uses a progressive tax system, meaning you pay different rates on different portions of your income. Understanding these brackets helps you calculate your actual tax liability and plan your finances effectively.
Income Tax Brackets for 2026/27
These are the income tax rates that apply for the 2026/27 tax year, which runs from 1 April 2026 to 31 March 2027. Inland Revenue introduced these thresholds from 1 April 2025 and has kept them unchanged, so the same brackets carry through the current year.
| Income Range | Tax Rate | Tax on Bracket | Cumulative Tax |
|---|---|---|---|
| $0 - $15,600 | 10.5% | $1,638 | $1,638 |
| $15,601 - $53,500 | 17.5% | $6,633 | $8,271 |
| $53,501 - $78,100 | 30% | $7,380 | $15,651 |
| $78,101 - $180,000 | 33% | Varies | Varies |
| $180,001+ | 39% | Varies | Varies |
Detailed Example: $75,000 Annual Salary
Let's calculate the exact PAYE tax for someone earning $75,000 per year with tax code M (no student loan):
Step 1: Calculate Tax by Bracket
Step 2: Calculate ACC Earners' Levy
Step 3: Calculate KiwiSaver (if enrolled at 4%)
Step 4: Total Annual Deductions
Monthly Breakdown
Effective Tax Rate
Your effective tax rate is the total PAYE tax divided by your gross income:
Notice that even though some income is taxed at 30%, the overall effective rate is only 19.6% because lower brackets are taxed at lower rates.
Independent Earner Tax Credit (IETC)
The IETC provides up to $520 per year ($10 per week) for eligible earners. This credit is built into your PAYE deductions, effectively reducing your tax.
IETC Eligibility Requirements:
- Annual income between $24,000 and $70,000
- Not receiving Working for Families Tax Credits
- Not receiving New Zealand Superannuation or Veteran's Pension
- Using tax code ME or M SL
IETC Amount by Income:
| Annual Income | IETC Amount | Weekly Benefit |
|---|---|---|
| $24,000 - $66,000 | $520 | $10 |
| $66,001 - $70,000 | $520 - reducing | $10 - reducing |
| Above $70,000 | $0 | $0 |
Between $66,000 and $70,000, the IETC reduces by 13 cents for every dollar earned above $66,000. At $70,000, it reaches zero. This means earning slightly more could result in less take-home pay in this range.
Student Loan Repayments
If you have a student loan and earn above the threshold, repayments are automatically deducted through PAYE.
Student Loan Rules (2026/27):
- Repayment threshold: $24,128 per year ($464 per week)
- Repayment rate: 12% on every dollar above the threshold
- Interest: 0% while living in New Zealand
- Overseas: Interest applies if you're overseas for 6+ months
Example: $55,000 Salary with Student Loan
Always use tax code MSL (or M SL with IETC) if you have a student loan. If you use code M, student loan repayments won't be deducted, and you'll receive a large bill when you file your annual return.
ACC Earners' Levy Details
The ACC Earners' Levy is currently 1.75% and covers:
- All injuries in New Zealand, work-related or not
- Medical treatment and rehabilitation
- Income compensation if injured
- Lump sum payments for permanent impairment
ACC Levy Caps:
The ACC levy is capped at a maximum earnings level (currently $156,641). If you earn above this, you don't pay ACC on the excess amount.
💰 Understanding Your Payslip
Your payslip is a detailed breakdown of your earnings and deductions for each pay period. Understanding every line helps you verify you're being paid correctly and track your finances effectively.
Essential Payslip Components
1. Personal Information
- Your full name
- IRD number
- Tax code
- Employee ID or payroll number
- Pay period dates
2. Gross Pay
Your total earnings before any deductions. This includes:
- Base salary or hourly wages
- Overtime pay
- Bonuses and commissions
- Allowances (car, phone, travel)
- Any other taxable income
If you're salaried, your gross pay should equal your annual salary divided by the number of pay periods (26 for fortnightly, 12 for monthly). For example, $60,000 salary = $2,308 fortnightly gross.
3. PAYE (Tax Deduction)
The largest deduction for most workers. This amount is:
- Based on your annual income and tax code
- Calculated using tax tables provided by IRD
- Progressive - higher earners pay more
- Sent directly to IRD by your employer
4. ACC Earners' Levy
Currently 1.75% of your gross earnings. This line should show:
- The percentage rate (1.75%)
- The dollar amount deducted
- Year-to-date ACC paid
5. KiwiSaver Contributions
If enrolled, this shows:
- Your contribution percentage (3%, 4%, 6%, 8%, or 10%)
- Dollar amount deducted this pay period
- Employer contribution (minimum 3.5%)
- Year-to-date totals
6. Student Loan Repayments
If you have tax code MSL or SH, this shows:
- Repayment rate (12%)
- Amount deducted this period
- Year-to-date repayments
7. Net Pay (Take-Home Pay)
The final amount deposited to your bank account:
8. Year-to-Date (YTD) Totals
Most payslips show cumulative amounts for the tax year (1 April to 31 March):
- Total gross earnings
- Total PAYE paid
- Total ACC paid
- Total KiwiSaver contributions
- Total student loan repayments
Common Payslip Scenarios
Scenario 1: Basic Employee
Situation: Monthly salary, no student loan, no KiwiSaver
| Item | Amount |
|---|---|
| Gross Monthly Salary | $4,500 |
| PAYE | -$715 |
| ACC Levy (1.75%) | -$66 |
| Net Pay | $3,719 |
Scenario 2: High Earner with KiwiSaver
Situation: High income, 6% KiwiSaver, no student loan
| Item | Amount |
|---|---|
| Gross Monthly Salary | $12,500 |
| PAYE (33% bracket) | -$3,456 |
| ACC Levy (1.75%) | -$183 |
| KiwiSaver (6%) | -$750 |
| Net Pay | $8,111 |
Note: Employer also contributes $375/month (3%) to KiwiSaver
Scenario 3: Multiple Jobs
Situation: Primary job (M code) and secondary job. Total income is about $60,000, which sits in the $53,501 to $78,100 band, so the secondary job uses the SH code (30%).
Primary Job Payslip:
| Item | Amount |
|---|---|
| Gross Fortnightly | $1,730 |
| PAYE (M code) | -$242 |
| ACC | -$25 |
| Net | $1,463 |
Secondary Job Payslip:
| Item | Amount |
|---|---|
| Gross Fortnightly | $577 |
| PAYE (SH code - 30%) | -$173 |
| ACC | -$10 |
| Net | $394 |
Secondary tax codes deduct a flat rate for the whole of your second income based on your total earnings, so if part of that income actually falls in a lower bracket you can be slightly overtaxed, and if you pick a code that is too low you can be undertaxed and face a bill. Inland Revenue's automatic income tax assessment usually squares this up after 31 March, and any refund is paid to you.
Checking Your Payslip for Errors
Common things to verify:
- Gross pay matches your contract: Annual salary ÷ 26 (fortnightly) or ÷ 12 (monthly)
- Tax code is correct: M, ME, MSL, or M SL for main job; S for second job
- ACC is 1.75%: Gross pay × 0.0175 should equal ACC deduction
- KiwiSaver percentage is correct: Should match what you selected (3-10%)
- Student loan threshold applied: Only deducted if you're above $24,128/year
- Hours worked: For hourly workers, verify hours × rate = gross
If you spot an error, contact your payroll team immediately. Common fixes include updating your tax code, correcting your KiwiSaver rate, or adjusting student loan deductions. Most errors can be corrected in the next pay period.
Understanding Leave Balances
Your payslip should also show:
- Annual leave balance: Days accrued minus days taken
- Sick leave balance: Usually 5 days per year after 6 months employment
- Alternative leave: For public holidays worked
- Long service leave: If applicable to your employer
🔢 Real-World Examples
Let's explore how PAYE works in practice across different income levels and situations.
Situation: Emma just started her first full-time job as a customer service representative earning $50,000 per year. She's using tax code M (no student loan) and isn't enrolled in KiwiSaver yet.
Annual Calculation:
Monthly Payslip Breakdown:
Effective Tax Rate:
Situation: Michael is a software developer earning $65,000. He has a student loan and is enrolled in KiwiSaver at 3%. Tax code: MSL.
Annual Calculation:
Fortnightly Payslip:
Michael's student loan repayment of $4,905/year ($189 per fortnight) is significant. However, the loan is interest-free while he's in NZ, so every dollar goes directly to reducing the principal. If his loan balance is $30,000, he'll pay it off in about 6 years at this rate.
Situation: Sarah is a senior accountant earning $120,000 per year. She contributes 6% to KiwiSaver and has no student loan. Tax code: M.
Annual Calculation:
Effective Tax Rate:
KiwiSaver Benefits:
Situation: James works full-time earning $45,000 (M code) and part-time on weekends earning $15,000. His total income of $60,000 falls in the $53,501 to $78,100 band, so his second job uses the SH code (30%).
Primary Job ($45,000 - M code):
Secondary Job ($15,000 - SH code at 30%):
Combined Income:
Year-End Situation:
If James earned all $60,000 from one job on the M code, his correct PAYE would be:
James overpaid PAYE by about $1,062. The SH code applied 30% to all of his second income, but part of that income actually sat in the 17.5% band, so a little too much was deducted. Inland Revenue's automatic income tax assessment after 31 March squares this up and pays the refund. Secondary codes get you close, but a two-job year is always worth checking.
Situation: Lisa works as a retail manager earning $42,000. She's using tax code ME to receive the Independent Earner Tax Credit. No student loan, no KiwiSaver.
Without IETC (M code):
With IETC (ME code):
IETC Benefit:
Fortnightly Payslip:
Lisa is in the perfect income range for IETC. If she earns a pay rise to $48,001 or more, she loses the entire $520 credit. This creates a "tax cliff" where earning $1 more costs $520 in lost credits - effectively a 52,000% tax rate on that extra dollar!
🎯 Test Your Knowledge
Complete this 10-question quiz to assess your understanding of the PAYE system
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