Your Progress 0%

NZ Tax Codes Explained

Related: Are you owed a tax refund? A part year, a second job on a secondary code, or the wrong tax code all leave too much PAYE deducted. Work out what IRD owes you.
Step 2 of 12 in the pathway Understanding your tax

📋 NZ Tax Codes Explained

Your tax code tells your employer how much PAYE (Pay As You Earn) tax to deduct from your wages. Using the wrong tax code means wrong amount of tax withheld - either underpaying (owing IRD at year-end) or overpaying (giving interest-free loan to government). Understanding which tax code applies to your situation and ensuring your employer uses the correct code prevents year-end tax surprises and ensures you're paying the right amount throughout the year.

Calculate.co.nz is proud to be partnered with Health Based Building, a leader in sustainable and health-conscious building innovation. With over a century of experience, they develop high-performance systems like Foreverbreathe Specification, Magnum Board, and Foreverbreathe Paints to support energy-efficient, non-toxic living environments. Their commitment to healthier homes aligns with our belief that informed choices lead to better outcomes for Kiwi households.
Calculate.co.nz partner: Health Based Building
Advertise on this page
Key Point: Tax codes determine PAYE withholding from wages. M, ME codes for primary job (main income source) include low-income tax threshold. Secondary codes (SB, S, SH, ST) for additional jobs have no threshold - higher withholding rate. SL suffix means student loan deductions apply. Wrong code = wrong tax deducted. Too little withheld = owe IRD at year-end plus possible penalties. Too much withheld = interest-free loan to government until refund. Check payslip to verify correct code being used. Provide tax code declaration (IR330) to employer. Update code when circumstances change (new job, student loan, income changes).

What Tax Codes Are

Tax codes are instructions from you to your employer about how to calculate PAYE deductions from your wages. Different codes apply different tax rates and thresholds.

Why Tax Codes Matter:

If Code Is... Result Consequence
Correct for situation Right amount of tax withheld No year-end surprise, minimal refund or payment
Too low (insufficient tax) Not enough tax withheld Owe IRD at year-end, possible UOMI and penalties
Too high (excess tax) Too much tax withheld Lower take-home all year, refund later (interest-free loan to govt)

Primary Income Tax Codes (Main Job)

M - Main Income Earner:

  • Who: This is your only job OR your main job if you have multiple
  • What: Includes low-income tax threshold (first $15,600 taxed at 10.5%)
  • When: Most common code for single job employees
  • Effect: Lower tax rate on first portion of income

ME - Main Income Earner Entitled to IETC:

  • Who: Main job AND eligible for Independent Earner Tax Credit (IETC)
  • What: Includes threshold plus IETC offset (reduces tax)
  • Eligibility: Income between $24,000-$48,000, not receiving Working for Families
  • Effect: Further tax reduction beyond M code

Note: IETC has been removed for new applicants, but existing recipients may still use ME code.

💼 Secondary Income Tax Codes

When Secondary Codes Apply

If you have more than one job, your secondary job(s) must use secondary tax codes. These have no low-income threshold - tax starts from first dollar earned.

Secondary Tax Code Options:

Code Tax Rate When to Use
SB Lower secondary rate Combined income from both jobs likely under $15,600
S Medium secondary rate Combined income $15,600-$53,500 range
SH Higher secondary rate Combined income $53,500-$78,100 range
ST Top secondary rate Combined income over $78,100

Why Secondary Codes Withhold More

The low-income threshold can only be claimed once. Your main job (M or ME code) claims it. Secondary jobs assume you've already used the threshold, so tax every dollar.

The Math:

Main job with M code: First $15,600 taxed at 10.5%, rest at higher rates
Secondary job with S code: All income taxed at flat rate (no threshold)
Combined: Total threshold only applied once across all income
Year-end: IRD reconciles total income and tax paid

Choosing the Right Secondary Code

Decision Framework:

  • Estimate combined annual income from all jobs
  • Match to secondary code rate that approximates overall tax bracket
  • Too high: Get refund at year-end but reduced take-home all year
  • Too low: Higher take-home all year but owe at year-end
  • Adjust if needed: Can change code anytime via IR330 form

🎓 Student Loan and Special Codes

Student Loan Tax Codes (SL Suffix)

If you have a student loan and earn above repayment threshold, add "SL" to your tax code for automatic student loan deductions.

Student Loan Codes:

Base Code With Student Loan What Happens
M M SL PAYE tax + student loan deduction (12% of income over threshold)
ME ME SL PAYE tax + IETC + student loan deduction
SB, S, SH, ST SB SL, S SL, SH SL, ST SL Secondary tax rate + student loan deduction

Why SL Code Matters:

  • Automatic deductions prevent year-end debt accumulation
  • Employer withholds and pays IRD directly
  • If you forget SL code, you'll owe full year's repayments at tax time
  • Threshold applies - deductions only on income above threshold

Special Circumstance Codes

ND - No Declaration:

  • When: Haven't provided tax code to employer
  • Rate: Higher withholding rate applied (45%)
  • Fix: Complete IR330 tax code declaration form
  • Why high: Protects you from underpaying if actually high earner

CAE - Casual Agricultural Employee:

  • Who: Seasonal agricultural workers
  • Rate: Specific rate for this work type
  • When: Short-term agricultural/horticultural work

EDW - Election Day Worker:

  • Who: Electoral commission workers on election days
  • Rate: Special rate for election day payments
  • When: Specifically for election day work only

STC - Special Tax Code:

  • When: IRD determines special rate needed for your circumstances
  • How: IRD issues STC rate directly to employer
  • Why: Unusual income patterns or specific situations requiring custom rate

✅ Checking and Changing Your Tax Code

How to Check Your Current Code

Where to Find It:

  • Payslip: Tax code should be shown on every payslip
  • Ask employer: Payroll department can confirm code on file
  • myIR: Login to check what employers have on record

When to Update Your Tax Code

Life Events Requiring Code Change:

Situation Action Needed Why
Start second job Change second job to secondary code (SB/S/SH/ST) Prevent underpaying tax on combined income
Leave second job Return remaining job to M or ME if now only job Claim low-income threshold, reduce overwithholding
Get student loan Add SL to existing code Start automatic student loan deductions
Pay off student loan Remove SL from code Stop deductions, increase take-home
Income changes significantly Adjust secondary code rate if multiple jobs Match withholding to actual tax bracket

How to Change Your Tax Code

Process:

  1. Determine correct code for your situation
  2. Complete IR330 form (Tax code declaration)
  3. Give to employer (payroll department)
  4. Verify on next payslip that new code being used

Common Tax Code Mistakes

Mistake 1: Using M Code for Both Jobs

If you have two jobs both using M code, you're claiming the threshold twice. Underpaying tax substantially. Will owe large amount at year-end.

Mistake 2: Using Secondary Code for Only Job

If secondary code (S, SH, ST) used for your only job, you're not claiming the threshold you're entitled to. Overpaying all year, get refund but lost use of money.

Mistake 3: Wrong Secondary Code Rate

Using SB when should use SH results in underpaying. Using ST when should use S results in overpaying. Match code to actual combined income level.

Mistake 4: Forgetting SL Code

Have student loan but no SL on code means no automatic deductions. Owe full year's repayments at tax time instead of spreading across year.

Year-End Reconciliation

IRD reconciles your total income and total tax paid across all jobs at year-end. Even with wrong tax codes during year, year-end squares it up - but you may owe money or be due refund.

The Reconciliation Process:

IRD receives income info from all employers
Calculates actual tax owed on total income
Compares to total tax withheld
Refund if overpaid, bill if underpaid
Use-of-money interest may apply if significant underpayment

Final insight: Tax codes are simple instructions but critical for correct PAYE withholding. Using correct code means right tax deducted throughout year - no nasty surprises at tax time. Check your payslip to verify code is correct for your situation. Update code when circumstances change. Five minutes to complete IR330 form prevents year-end stress and potential penalties from using wrong code.

🎯 Test Your Knowledge

Quiz on NZ Tax Codes

1. M tax code is for:
Multiple jobs
Main job, includes low-income threshold
Married people only
Monthly paid employees
2. Secondary tax codes (SB, S, SH, ST) are used for:
Your main job
Second or additional jobs
Part-time work only
Self-employed income
3. Secondary codes withhold more tax because:
No low-income threshold - assumes you claimed it on main job
Second jobs are taxed more heavily by law
IRD wants to penalise multiple job holders
They don't - same rate as primary codes
4. SL suffix on tax code means:
Single low-income earner
Salary and wage earner
Student loan deductions apply
Self-employed or contractor
5. Using wrong tax code results in:
Immediate fine from IRD
Wrong amount withheld - may owe or be due refund at year-end
Criminal charges
Nothing - codes don't actually matter
6. If you have two jobs, both using M code:
Wrong - claiming threshold twice, will underpay and owe at year-end
Perfectly fine - recommended
Only allowed for high earners
Only a problem if combined income is high
7. ND tax code means:
No declaration made - high withholding rate (45%) applied
New Zealand dollars
Non-deductible income
Not declared to IRD
8. To change your tax code you:
Contact IRD directly - they change it
Can't change it once set
Just tell employer verbally
Complete IR330 form and give to employer
9. ME code includes:
Medical expenses deduction
Married exemption
Monthly employee classification
Main earner threshold plus IETC (for eligible recipients)
10. What is best practice for managing tax codes?
Never check them - employer handles it
Use highest code to maximise refund
Check payslip to verify correct code, update when circumstances change
Change codes monthly for optimisation

Return to Learning Centre
Data sources: the rates and thresholds on this page are maintained against Inland Revenue. Figures are checked twice monthly.

Related guides