PAYE Guide — How It Works, Tax Codes, Secondary Tax
Updated for 2026 IRD rates
What is PAYE?
PAYE (Pay As You Earn) is the system your employer uses to deduct tax from your wages or salary before you receive them. In New Zealand, PAYE rates for 2026 range from 10.5% to 39% depending on your income bracket — most earners pay 17.5% or 30% on the bulk of their salary. Your employer sends these deductions directly to Inland Revenue on your behalf. The amounts deducted include income tax, ACC earners' levy, KiwiSaver contributions (if you're enrolled), and student loan repayments (if applicable).
PAYE Deductions Detail
Each pay period, your employer calculates the following deductions from your gross pay:
- Income tax — Based on your tax code and the progressive tax rates
- ACC earners' levy — Currently $1.33 per $100 of liable earnings (2025/26 rate)
- KiwiSaver — Your contribution (3%, 4%, 6%, 8%, or 10% — as you chose) plus employer contribution (3% minimum)
- Student loan — 12% of gross earnings above the repayment threshold if you have a student loan
- Child support — If required by a formula assessment from IRD
Tax Codes Explained
Your tax code tells your employer how much tax to deduct. Choose the right code based on your circumstances:
| Tax Code | When to Use |
|---|---|
| M | Main job — you have only one job and are not receiving NZ Superannuation |
| M SL | Main job with a student loan repayment |
| S | Secondary job or second source of income |
| S SL | Secondary job with a student loan |
| SH | Secondary job with a student loan and higher earnings |
| ST | Secondary tax rate for casual agricultural work |
| SB | Secondary tax rate for schedular payments (contractors) |
| CAE | Casual agricultural employees |
| NZ Super | If you're receiving NZ Superannuation or a Veteran's Pension |
| WT | Withholding tax rate — for schedular payments without a tax code form |
Secondary Tax Explained
If you have more than one job, your main job uses the 'M' tax code and your second job uses the 'S' tax code (or 'SH' if your combined income is likely to be over $48,000). Secondary tax rates are higher because they don't account for the lower tax brackets you've already used up in your main job. The secondary tax rate is effectively 17.5%, 30%, 33%, or 39% of your secondary earnings, depending on your expected total income.
How to Change Your Tax Code
You can change your tax code at any time by:
- Using the online tool in myIR — search for 'Change my tax code'
- Completing an IR330 form and giving it to your employer
- Contacting IRD directly
If you change jobs, your new employer will ask you for a tax code on your first day. Make sure you provide the correct one.
PAYE and the End of the Tax Year
At the end of the tax year (31 March), IRD reconciles the PAYE deducted from your pay against your actual tax liability. If too much was deducted, you'll receive a refund. If too little was deducted, you'll need to pay the difference. This is often handled automatically for salary and wage earners through IRD's automatic assessment system.
What Comes Out of Your Pay
A pay slip can look crowded, so here is what each deduction is and where it goes. PAYE tax is your income tax, deducted using your tax code and the 2025/26 brackets (10.5% to 39%). ACC earner levy is 1.67% of your gross earnings in 2025/26 (rising to 1.75% in 2026/27), capped at liable earnings of $152,790 — it funds ACC cover for non-work injuries. KiwiSaver is deducted at your chosen rate (3%, 4%, 6%, 8% or 10%; the default becomes 3.5% from 1 April 2026). Student loan repayments (12% above the threshold) apply only if you have a loan and use an SL tax code. Your employer also pays ESCT on any employer KiwiSaver contributions — that is an employer cost, not a deduction from your take-home pay.
The Annual Square-Up
PAYE is an estimate, not a final bill. At the end of the tax year IRD reconciles what was deducted against what you actually owe, using your tax code, your actual income, and any credits such as the independent earner tax credit or donations credit. If your circumstances changed mid-year — a new job, a second job without the right secondary code, a pay rise, or time off — the square-up can produce a refund or a bill. Most people with simple affairs get an automatic assessment and never file a return; if you have multiple jobs or irregular income, review your tax code twice a year to keep the estimate accurate. You can check your income summary and assessment in myIR at any time.
Related Guides
Deep dive — 2026 update
Full worked example: $75,000 salary
Weekly and fortnightly PAYE comes from IRD's deduction tables (IR340 for weekly, IR341 for fortnightly), but the annual shape of the calculation is easy to follow. For a $75,000 salary with the M tax code, 3.5% KiwiSaver and a 1.75% ACC earners' levy:
| Item | Annual |
|---|---|
| Gross salary | $75,000.00 |
| PAYE (progressive, after the independent earner credit situation) | $14,720.50 |
| ACC earners' levy (1.75% in 2026/27) | $1,312.50 |
| KiwiSaver employee contribution (3.5%) | $2,625.00 |
| Net pay | $56,342.00 |
| Effective tax rate (PAYE only) | 19.6% |
The marginal rate at $75,000 is 30%, but the effective PAYE rate is around 19.6% — a distinction that matters when you are deciding whether extra hours are worth it. Note that the ACC levy is charged at the flat $1.75 per $100 rate on earnings up to $156,641, with a maximum levy of $2,741.22 in 2026/27.
Tax code quick reference
| Code | Use it when |
|---|---|
| M | Main job, no student loan, no other income — the standard full-time code |
| ME | Main job plus the independent earner tax credit entitlement |
| SB / S / SH / ST / SA | Second job — the code reflects your total income from all sources |
| SL, SH SL, ST SL, SA SL | Add "SL" when you have a student loan |
| CAE / EDW / STC | Special codes: ACC payments, election-day workers, schedular payments |
| NS | NZ Superannuation |
| SH SHB etc. | Tailored codes approved by IRD for unusual income combinations |
The second-job code must include both jobs' income. Someone earning $40,000 in their main job and $20,000 in a second job uses the S code (total income in the $15,601–$53,500 band) — not SB. Using SB under-deducts and produces a bill at year end.
The annual square-up: why refunds and bills happen
- Refund: usually an incorrect secondary code, a period of unemployment, or an IETC entitlement that was not applied during the year.
- Bill: income that was not taxed at source — a second job at under 30% combined, rental income, interest, or a KiwiSaver PIR mismatch.
- No action needed: if you used M throughout on one job and IRD's pre-populated return shows nil, confirmation is usually automatic.
IRD issues the automatic assessment after the tax year ends on 31 March; check myIR in late May/June and correct anything wrong before the return is finalised.