Your New Zealand tax code determines how much tax you have to pay. If you’re working for someone, it tells your employer how much they need to deduct from your income via the Pay as You Earn (PAYE) system. The money that gets deducted includes both the tax rate for your income and your ACC earner’s levy. Having the right tax code is pretty important because if you’re on the wrong one you could either be paying too much or too little tax. That might not sound like a big deal, but paying the wrong tax has big implications come tax return time.
Tax Codes 101
First things first: it’s kind of your responsibility to ensure that you’re on the right tax code. Welcome to adulthood! So, when you start a new job it’s up to you to fill out the IR330 form correctly. It’s a pretty easy form, and yet so many people get it wrong!
The tax code you’re on depends on a few things:
- the number of jobs or sources of income you have
- student loan – whether or not you have one
- residency status
- the kinds of benefits you receive (if any)
Basically, if you get your tax code wrong on the IR330, you’re going to end up with a hefty tax bill at the end of the year. Not ideal. The worst part about this is that those wallet-crippling tax bills are completely avoidable. These kinds of tax bills only occur when workers don’t notify their employers when their circumstances change.
So, if you have a significant change in your earnings, you tap into another source of income, or your family begins receiving tax credits, you need to let your employer know to change your tax code to reflect these changes. That way you won’t be burned in the future.
Respect the IR330
Fact: if you’re earning money in New Zealand you need a tax code. It doesn’t matter if you’re full-time, part-time, or casual: anyone working in New Zealand has to pay taxes on income, it’s kind of the law. And to pay your taxes like the law-abiding good citizen you are, you need to fill out a tax declaration form, also known as the IR330.
In addition to writing your tax code you also need to note your student loan repayment code – and if you’ve studied here you’ve probably got a student loan like the rest of us. Different tax codes apply to different work situations, so fill out the IR330 with the right tax code each time you start a new job, or your income and student loan situations change (e.g. you pay off that dastardly student loan!).
The IR330 is given to you by your employer, but you can print it off the web too. All you need to do is fill it out and it literally takes 5 minutes. Boom. Even better, it comes with the full list of codes on it, making choosing the right tax code that much easier for you. If you’re thinking that filling out an IR330 is more trouble than it’s worth, you’re mistaken! If you don’t fill out the form your employer is obliged to take out taxes at a much higher rate than if you had just scribbled in a letter! The no-notification rate happens to be 45 cents for each dollar you make. Ouch! Just take 5 and fill out the form. And don’t get overwhelmed by the amount of codes you can choose from, most people are on M. Of course, if you’re struggling to decide, we can always help you out.
Classic tax codes
The main tax code for most Kiwis is M, which stands for main. Logical! If you have one job, and no student loan, you just choose M. If you’ve got a main source of income and you have a student loan, easy-peasy. You just write M SL on the form. This way the right amount of student loan repayments gets taken out of your pay too, keeping Studylink happy while also chipping away at your loan at the same time.
If you’re a keen bean and you’re working more than one job, you have to fill out an IR330 for each job, one for your main income and one for your secondary. Your IR330 for your main income remains M, while your secondary job is S. And you know what to do if you’ve got a student loan – just whack on the SL too and you’re good to go.
Now, if you’re lucky enough to qualify for the independent earner tax credit, then use ME on the form. Kiwis earning between $24,000 and $48,000 are entitled to a tax credit of up to $10 a week. That might not sound like much but it adds up to a lot of money over a year. Other tax credits have letters that correspond to them too – it’s worth checking with your tax agents to see if you’re eligible for tax credits – this could save you a heap of money at the end of the year, and we’re always happy to help! In the meantime, here are the most common codes you need to know when filling out your tax declaration form.
|M||Earnings are main source of income|
|ME||Earnings are main source of income and entitled to independent earners tax credit (IETC)|
|ML||Earnings are main source of income where annual taxable income is less than $9,880|
|M SL||Earnings are main source of income with student loan|
|SB||Earnings are secondary source of income and annual taxable income is less than $14,000|
|S||Earnings are secondary source of income and annual taxable income is less than $48,000|
|S H||Earnings are secondary source of income and annual taxable income is between $48,000 and $70,000|
|S T||Earnings are secondary source of income and annual taxable income is more than $70,000|
|WT||Taxing scheduler payments|
|CAE||Earnings of casual agricultural employees|
|EDW||Earnings of election day workers|
|NWS||Earnings of non-resident seasonal workers|
|STC||Earnings of special tax code|
Do your job, we’ll do ours
Filling out forms can be a hassle – we know it’s true. And it’s tempting to assume that you know what tax code you should be on, or that the tax men at the IRD will know to correct your mistakes. The thing is, it’s your responsibility to make sure you’re putting down the right tax code on your IR330. If the IRD doesn’t have the correct information, you’re out of pocket. While figuring out the right tax code is easy, we don’t expect you to know what tax credits you’re entitled to, or what to do if you’re a casual worker. That’s when filing your taxes gets a little complicated! Talking to us could help you save a lot of time, money and might even save you from future tax bill headaches.
Get in touch today to see how we can get you more bang for your tax bucks.