Secondary Tax Codes Explained

💡 What Secondary Tax Really Is

If you have more than one job, or a job plus a benefit or pension, one of those sources of income uses a secondary tax code. Secondary tax has a terrible reputation, with many people convinced it is a penalty that takes a bigger bite out of a second job. It is not. Secondary tax exists to solve a real problem, and once you understand the problem it is solving, the codes make complete sense.

                Key Point: New Zealand income tax is progressive, so the rate rises as your total income climbs through the brackets. Your main job's tax code assumes it is your only income and applies the low brackets first. If a second job also started from the bottom bracket, the two jobs together would be under-taxed. A secondary tax code fixes this by taxing the second income at the rate that matches your combined income, so it sits on top of your main job rather than starting again from zero. It is not an extra tax. It is the same tax, applied in the right place.
            

Why a Second Job Cannot Start From the Bottom

Imagine your main job pays $50,000. That income has already used up the lower tax brackets. Now you take a second job paying $10,000. That $10,000 is not your first $10,000 of income for the year; it is income number $50,001 to $60,000, which falls in a higher bracket. If the second job taxed it as though it were your first $10,000, you would pay too little and face a bill at year end.

Primary tax code (M, ME and similar): Used on your main or highest-paying source of income. It applies the tax brackets from the bottom up.
Secondary tax code (SB, S, SH, ST, SA): Used on every other source. It applies a single flat rate that matches the bracket your combined income reaches.

                The myth, busted: Secondary tax does not mean you pay more tax overall on the same income. It means the tax on your second income is collected at the correct marginal rate as you earn it, rather than landing as a surprise bill at the end of the year. If anything, the system is designed so you are not caught short.
            

One Primary Code, The Rest Secondary

You use a primary tax code on just one source, usually your highest-paying job. Every additional source uses a secondary code. Getting this the right way around matters: putting your main job on a secondary code, or two jobs both on primary codes, is where real over or under-taxation creeps in.

📊 The Secondary Tax Codes and Rates

Choosing the Right Secondary Code

There is no single secondary tax rate. The code you use depends on your total income from all sources, because that is what decides which bracket your second income sits in. You estimate your total annual income, then pick the code whose band it falls into.

Secondary Tax Codes and Rates (2026/27):

Code	Total income from all sources	Tax rate on the secondary income
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%

The ACC earner levy is deducted on top of these rates, just as it is on your main job, up to the annual earnings cap. The percentages above are the income tax portion.

Main job pays $50,000, second job pays $10,000

Total income is about $60,000

$60,000 falls in the $53,501 to $78,100 band

So the second job uses the SH code, taxed at 30%

That matches the 30% bracket the combined income reaches

The SB and S Codes Catch People Out

If your combined income is modest, your secondary rate can be low. Someone with a small main income and a small second job might correctly use the S code at 17.5%, or even SB at 10.5%. People assume secondary tax is always punishing, but for lower earners the secondary rate can be quite gentle.

The SL Add-On for Student Loans

If you have a student loan, an SL is added to your secondary code, for example SH SL. This deducts student loan repayments from the secondary income as well. There are rules about repayment thresholds across multiple jobs, which is a common source of over-deduction, so it is worth checking if you have a loan and more than one job.

                Estimate honestly: The right code depends on your total income for the year. If you guess too low, you will be under-taxed and face a bill; too high, and you are over-taxed until the square-up. Use a realistic estimate of everything you will earn from all sources.
            

Use our Secondary Tax Code Calculator to find the right code, and the PAYE Calculator to see your take-home pay.

⚖️ Over-Taxed, Under-Taxed and the Square-Up

Why Secondary Tax Can Be Wrong For You

Secondary tax codes apply a single flat rate to your whole second income. That is a neat approximation, but it can be slightly off, because your second income might straddle a bracket boundary, or your total income might be lower than the flat rate assumes.

Over-taxed: If your second job is small and your total income is near the bottom of a band, the flat secondary rate can take more than your true marginal rate, leaving you owed a refund.
Under-taxed: If you chose a code for a lower band than your real income, the second job is taxed too lightly and you will owe tax at year end.

The Year-End Square-Up

Whatever happens during the year, Inland Revenue reconciles it all at the end of the tax year. It adds up your income from every source, works out the correct total tax, compares it with what was deducted, and issues a refund or a bill for the difference. This automatic assessment is why secondary tax is self-correcting over a full year.

During the year, each job deducts tax using its code

After 31 March, IRD totals all your income

It calculates the correct tax on the combined total

If too much was deducted, you get a refund

If too little, you get a bill to pay

Tailored Tax Codes Fix Over-Taxation Sooner

If you think secondary tax is over-taxing you, you do not have to wait for the square-up. You can apply to Inland Revenue for a tailored tax code, sometimes called a special tax code, which sets a custom deduction rate for your situation. IRD works out a rate that better matches your real circumstances and issues a certificate you give to your employer.

Situation	What to consider
Two roughly equal jobs	Secondary tax may over-deduct; a tailored code can smooth it
Income varies a lot through the year	A tailored code can set a rate that fits the whole year
Eligible for the IETC	A tailored code can build in the Independent Earner Tax Credit
Owed money each year	A tailored code reduces the over-deduction so you keep more as you go

A tailored tax code is a free request to IRD, valid for the tax year, and you simply give the certificate to your employer to use.

✅ Common Mistakes and What to Do

Mistake 1: Treating Secondary Tax as a Penalty

The trap: Turning down a second job, or being upset by the deduction, because you believe secondary tax robs you.

The reality: You pay the same total tax on the same income either way. Secondary tax just collects the right amount as you earn, instead of leaving you with a bill. Extra income is still extra income in your pocket.

Mistake 2: Putting the Main Job on a Secondary Code

The trap: Using a secondary code on your highest-paying job and a primary code on the small one.

Why it costs: Your largest income then gets a flat secondary rate from a high band, badly over-taxing you all year. Always put the primary code on your highest earner.

Mistake 3: Guessing the Wrong Band

The trap: Choosing S when your total income is really in the SH or ST range, or vice versa.

Why it costs: The wrong band means systematic over or under-deduction. Estimate your total income across all sources honestly and pick the matching code.

Mistake 4: Ignoring a Student Loan or the IETC

The trap: Forgetting the SL add-on with a loan, or missing the Independent Earner Tax Credit you are entitled to.

Why it costs: You can over-repay a loan across two jobs, or miss a credit worth up to $520 a year. A tailored tax code can fold the IETC in.

A Simple Action Plan

1. Put the primary code on your highest-paying source

2. Estimate your total income from all sources for the year

3. Pick the secondary code whose band that total falls in

4. Add SL if you have a student loan

5. If you are consistently over-taxed, apply for a tailored tax code

6. Check your end-of-year assessment for the refund or bill

Where to Go Next

Use the Secondary Tax Code Calculator to find your code, the PAYE Calculator for take-home pay, the IETC Calculator to check the Independent Earner Tax Credit, and the Tax Refund Calculator to estimate your square-up.

Final word: Secondary tax is not a penalty, it is a way of collecting the correct tax on a second income as you earn it. Put the primary code on your biggest earner, choose the secondary code that matches your total income, add SL for a student loan, and ask for a tailored code if you are being over-taxed. The year-end square-up catches anything left over. This is general information, not personalised tax advice, so check your own situation with Inland Revenue or a tax professional.

🎯 Test Your Knowledge

Quiz on Secondary Tax Codes (20 Questions)

1. Why does New Zealand use secondary tax codes?

To tax a second income at the rate matching your combined income

To punish people who have more than one job

To collect an extra tax on top of normal tax

To stop people taking second jobs

2. New Zealand income tax is:

Progressive, so the rate rises as total income climbs the brackets

A single flat rate on all income

Higher on second jobs by law

Only charged on your main job

3. You should use a primary tax code on:

Your highest-paying source of income

Every job you have

Your smallest job

None of your jobs

4. Which of these is a secondary tax code?

5. The correct secondary code depends on:

Your total income from all sources

Only the size of the second job

Your age

Which day you are paid

6. If your total income is about $60,000, the secondary code is:

SH, taxed at 30%

SB, taxed at 10.5%

SA, taxed at 39%

S, taxed at 17.5%

7. The S code applies when total income is:

$15,601 to $53,500, taxed at 17.5%

Over $180,000, taxed at 39%

$15,600 or less, taxed at 10.5%

$78,101 to $180,000, taxed at 33%

8. Does secondary tax mean you pay more total tax on the same income?

No, it collects the same tax at the correct rate as you earn

Yes, it always adds extra tax

Yes, it doubles the tax on the second job

Only if you earn under $15,600

9. The SL added to a secondary code means:

Student loan repayments are also deducted from that income

A higher tax rate applies

You are exempt from tax

You get a special low rate

10. You become over-taxed by secondary tax when:

The flat rate takes more than your true marginal rate

You earn over $180,000

You have only one job

You use a primary code

11. At the end of the tax year, Inland Revenue:

Totals all income and issues a refund or a bill for the difference

Ignores secondary income

Charges a penalty for second jobs

Cancels your secondary code

12. A tailored tax code is:

A custom deduction rate IRD sets for your situation

A code only for company directors

A way to avoid all tax

The same as the M code

13. Putting your main job on a secondary code usually:

Badly over-taxes your largest income all year

Saves you tax

Has no effect

Is required by IRD

14. The SB secondary code applies to total income of:

$15,600 or less, taxed at 10.5%

Over $180,000

$53,501 to $78,100

Exactly $60,000

15. For a lower earner with two small incomes, the secondary rate:

Can be quite gentle, like 10.5% or 17.5%

Is always 39%

Is always 33%

Does not exist

16. The ACC earner levy on secondary income is:

Deducted on top of the income tax rate, up to the earnings cap

Never charged on a second job

Included in the secondary tax percentage

Charged at 39% always

17. If you under-estimate your band and pick too low a code, you will:

Be under-taxed and likely owe tax at year end

Get a guaranteed refund

Pay no tax

Be fined immediately

18. A tailored tax code can also:

Build in the Independent Earner Tax Credit you are entitled to

Exempt you from ACC levies

Remove your student loan

Increase your tax for no reason

19. Taking a second job, even on secondary tax, means:

The extra income is still extra money in your pocket

You end up worse off than not working it

You lose money overall

Your main job is taxed more

20. A sound approach to secondary tax is to:

Primary code on the biggest earner, pick the code matching total income, add SL, and request a tailored code if over-taxed

Use a secondary code on every job

Always pick SB to pay the least

Never tell IRD about the second job

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