What is PAYE?
PAYE stands for “Pay as You Earn” and is the primary income tax system used in New Zealand. You don’t have to worry about it generally as your employer will handle this part before your wages go out to you. If you’d like to see how much you PAYE is for you, try our PAYE calculator.
PAYE is mostly a combination of income tax and ACC earner’s levy. The ACC earner’s levy is a compulsory contribution on the part of an employee to cover the cost of non-work injuries. The Inland Revenue Department collects these on the behalf of the Accident Compensation Corporation (ACC).
The ACC earner’s levy is deducted at a rate of $1.39 GST-inclusive per $100 of earnings.
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How much of my salary and wages goes towards PAYE?
All kiwis receiving salary and wages are required to pay income tax and ACC earner’s levy as a part of their PAYE, there are also other factors that often need to be included. Employers will likely use these PAYE tables provided by the Inland Revenue Department to figure out how much PAYE needs to be deducted weekly or fortnightly.
You can find more information on tax codes here, however tax codes provide the basis for how much income tax is deducted as a part of PAYE. For your primary (highest earning) income source you will likely be on an M or an ME tax code.
You provide your tax code to your employer when you first begin employment by completing a Tax code declaration (IR330). If you ever want to change your tax code you MUST complete a new Tax code declaration (IR330) at the time your details change. Failure to do so may result in the incorrect PAYE being deducted. Your employers will keep copies of your IR330’s for at least seven years if you wish to query which tax code you are currently on.
If you are on an M tax code then your PAYE will be as follows:
- 11.89% on income $0 – $14,000
- 18.89% on income from $14,001 – $48,000
- 31.39% on income from $48,001 – $70,000
- 34.39% on income from $70,001 – $122,063
This is the number provided in the second column on the PAYE tables.http://www.ird.govt.nz/resources/2/5/2579a84d-9013-4b9c-999f-3e4909cf941c/ir340-2017.pdf
If you’re on a ME tax code this is due to the fact you believe you are eligible for the Independent Earner’s Tax Credit (IETC). The Independent Earners Tax Credit is a tax credit for Kiwi tax payers who earn a gross annual income of between $24,000 and $48,000. To be eligible to use this code you must also not be:
- Entitled to Working for Families Tax Credits, or have a partner who is entitled to Working for Families Tax Credits.
- Receiving an overseas equivalent to the Working for Families Tax Credit, or have a partner who is receiving the equivalent of the Working for Families Tax Credit.
- Receive any income tested benefits, this includes NZ Superannuation, Veterans Pension or any overseas equivalent.
Employees who qualify for the Independent Earners Tax Credit will have their PAYE reduced by $10 per week, for income between $24,000 and $44,000. This tax credit will reduce by $0.13 for each extra dollar they earn over $44,000, reaching a nil entitlement at $48,000.
If you’re unsure whether you qualify for this tax credit it is best to leave your tax code as an M as the benefit can be claimed as a tax refund at the end of the financial year. If you’d like to check if you’re eligible for the Independent Earner’s Tax Credit you can apply with MyTax.co.nz and we will find any available refunds and rebates available for you.
This is the number in the third column on the PAYE tables.
Secondary TAX is deducted as a part of PAYE at a flat rate depending on your secondary tax code:
- 11.89 cents in the dollar for the SB and SB SL tax code
- 18.89 cents in the dollar for the S and S SL tax codes
- 31.39 cents in the dollar for the SH and SH SL tax codes
- 34.39 cents in the dollar for the ST and ST SL tax codes
You can find tables for secondary tax codes on pages 139 to 158 on the PAYE tables.http://www.ird.govt.nz/resources/2/5/2579a84d-9013-4b9c-999f-3e4909cf941c/ir340-2017.pdf
Student Loan Deductions:
Your employer is required to deduct student loan repayments through the PAYE system. They do this at a standard deduction rate when an employee provides the employer with any of the following tax codes: M SL, ME SL, SB SL, S SL, SH SL or ST SL (You can find the right tax code for you here). Student loan repayments are set at 12 cents in the dollar for every dollar earned over a pay period.
If you want to pay off your loan a little quicker you can always request your employer make extra deductions. Those deductions would be in addition to the amount normally deducted using the student loan repayment code.
If you are a casual agricultural employee, Election Day worker, on the no-notification rate or receive schedular payments (formerly withholding payments) then your employer will not deduct the student loan at the PAYE level. For more information regarding these payments please see the expanded information in the PAYE table’s document provided by IRD.
The amount to deduct based on income is provided in the fourth column of the PAYE tables.
Kiwisaver is a voluntary, long-term savings initiative. Your employer will provide you with Information regarding Kiwisaver. They will then deduct Kiwisaver contributions from your pay and contribute a percentage of your salary and wages as employer contributions.
When you begin employment, your employer should provide you with a Kiwisaver deduction form. The form you fill out will allow you to elect a rate to have Kiwisaver deductions made from your pay, either 3%, 4% or 8%. If you’re subject to automatic enrolment and do not supply your employer with a KS2 form, the default deduction rate is 3% of your gross salary and wages. Employers will hold onto this information for seven years along with other wage records.
NET CEC and ESCT:
An employer contribution is a monetary amount paid to a superannuation or Kiwisaver fund, by an employer, for your benefit. It does not include the employee deduction outlined above. Employers must contribute a minimum of 3% to a superannuation fund (including Kiwisaver) of your gross salary or wages. This is included under the CEC section of the PAYE tables.
All employer contributions paid to a superannuation fund, including Kiwisaver schemes and complying funds, for the benefit of an employee are liable for ESCT (Employer Superannuation Contribution Tax). The exception to this is if the employee and employer have agreed to treat some or all of the employer contribution as salary or wages under the PAYE rules.
ESCT is calculated at a rate based on your total annual salary or wages plus the employer’s gross contributions for the previous tax year. For a quick guide to work out ESCT rates you can use the following along with your total annual income figure (including gross superannuation employer contributions)
- $0 – $16,800 ESCT is 0.105 or 10.5%
- $16,801 – $57,600 ESCT is 0.175 or 17.5%
- $57,601 – $84,000 ESCT is 0.30 or 30%
- 84,001 up ESCT is 33%
Armed with all that information you should be able to follow the PAYE tables provided and figure out the correct PAYE your employer should be paying on your income weekly or fortnightly. If you believe they may be filing your PAYE incorrectly it’s worth applying for a tax refund at the end of the year to check for any refunds available!