Pay As You Earn (PAYE) is how New Zealand collects income tax from employees. Your employer deducts tax from each pay and pays it directly to Inland Revenue on your behalf. This guide explains exactly how PAYE works, how to check it’s correct, and what to do when it goes wrong.
PAYE is automatically deducted by your employer each pay cycle. On a $70,000 salary, PAYE is $14,020/year ($269/week). Your employer sends this directly to IRD. At year end, IRD auto-assesses most employees — you only need to file an IR3 if you have other income sources (rental, business, overseas). Check your deductions at myir.ird.govt.nz.
PAYE Quick Calculator
How PAYE Works in NZ
PAYE was introduced to ensure income tax is collected throughout the year rather than in a lump sum. The process works as follows:
- You provide your tax code to your employer on an IR330 Tax Code Declaration form when you start work
- Each pay cycle, your employer deducts PAYE based on your tax code and salary, plus ACC levy and any KiwiSaver contributions
- Each pay cycle, your employer pays these deductions to IRD on your behalf via the employer monthly schedule (EMS) or payday filing
- At year end (31 March), IRD calculates whether you have paid the right amount of tax
- IRD issues an income tax assessment through myIR — you either get a refund or have a bill to pay
Tax Codes Explained
Your tax code tells your employer how much PAYE to deduct. Choosing the wrong code means over- or under-paying during the year.
| Tax Code | When to Use |
|---|---|
| M | Main or only job — no student loan |
| M SL | Main job — with student loan repayment |
| ME | Main job — earning $24,000–$48,000, no student loan (includes independent earner tax credit) |
| ME SL | Main job — $24,000–$48,000, with student loan |
| SB | Secondary job — combined income $14,000 or below |
| S | Secondary job — combined income $14,001–$48,000 |
| SH | Secondary job — combined income $48,001–$70,000 |
| ST | Secondary job — combined income $70,001–$180,000 |
| SA | Secondary job — combined income $180,001+ |
| WT | Schedular payments (contractors) |
| CAE | Casual agricultural employees |
Where to find your tax code: Download form IR330 from ird.govt.nz, or complete it online through myIR. Give the completed form to your employer.
Independent Earner Tax Credit (IETC)
The IETC is a tax credit of up to $20/week ($520/year) for individuals who:
- Earn between $24,000 and $48,000 per year
- Do not receive Working for Families tax credits
- Are not a beneficiary or NZ Super recipient
To receive the IETC through PAYE, use tax code ME instead of M. If you forget, you can claim it at year end through myIR.
PAYE and Multiple Jobs
If you have two jobs in NZ, you must use a secondary tax code for your second job. This prevents you from underpaying during the year.
Example: You earn $55,000 at your main job (tax code M) and $15,000 at a second job. Your combined income is $70,000, which falls in the $48,001–$70,000 bracket. Use tax code SH (30%) for the second job.
If you use the wrong code (e.g., M for both jobs), IRD will assess you as having underpaid at year end and issue a tax bill.
What Happens at Year End?
IRD issues an income tax assessment by 31 May each year for the prior tax year (1 April – 31 March). Through myIR:
- If you overpaid: IRD issues a refund — often paid within a few days to your bank account
- If you underpaid: IRD issues a tax bill — payable by 7 February the following year (or 7 April with a tax agent)
- If you’re even: no action needed
Most NZ employees who have only PAYE income end up with small discrepancies (under $100). Larger gaps often indicate incorrect tax codes or unreported income.
Frequently Asked Questions
How do I know if my PAYE is correct?
Use myIR (myir.ird.govt.nz) to check your employment income and PAYE deductions. Your payslip should show gross pay, PAYE deducted, ACC levy, and KiwiSaver. The income tax calculator above will tell you the theoretically correct PAYE for your gross income.
Can my employer deduct too much PAYE?
Yes — usually caused by using the wrong tax code. If you use a secondary tax code (SH, ST) for your main job, you will overpay during the year. IRD will refund the overpayment at year end. Check your payslips regularly.
What is payday filing in NZ?
Since 1 April 2019, all NZ employers are required to report employee pay information to IRD on or before each payday (rather than monthly). This means IRD has near real-time visibility of your income and PAYE, and year-end assessments are more accurate.
What happens if my employer doesn’t pay my PAYE to IRD?
You are not personally liable if your employer fails to pay your PAYE to IRD — the obligation is the employer’s. If you discover your employer is not paying PAYE, contact IRD. You may still be owed credits for tax notionally deducted from your pay.
Do I need to file a tax return if I only have PAYE income?
Usually not. If you have only one PAYE job and no other income, IRD auto-assesses you. You only need to file an IR3 return if you have rental income, business income, overseas income, or a student loan and overseas income. See how to file an IR3 tax return.