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Pay As You Earn (PAYE)

PAYE is the system where employers deduct income tax directly from employees' wages or salaries before payment.

Sections

What is PAYE?

PAYE (Pay As You Earn) is New Zealand's system for deducting income tax and other levies directly from an employee's wages or salary. Employers are responsible for calculating and deducting these amounts before paying employees, ensuring that taxes are paid to the Inland Revenue Department (IRD) on behalf of the employee.

Key Components of PAYE

  1. Income Tax: The primary component of PAYE is income tax, which is deducted based on progressive tax rates.
  2. ACC Earnerโ€™s Levy: This is a compulsory levy to fund New Zealandโ€™s Accident Compensation Corporation (ACC), which provides no-fault personal injury cover. It is also deducted as part of PAYE.

Income Tax Rates (2023-2024)

New Zealand uses a progressive tax system, meaning the more you earn, the higher the tax rate applied to your income. The rates for individuals are as follows:

| Annual Income Bracket (NZD) | Tax Rate | |---------------------------------|--------------| | $0 - $14,000 | 10.5% | | $14,001 - $48,000 | 17.5% | | $48,001 - $70,000 | 30% | | $70,001 - $180,000 | 33% | | Over $180,000 | 39% |

  • Example: If you earn $60,000 annually, your income will be taxed progressively:
    • 10.5% on the first $14,000
    • 17.5% on the next $34,000 ($14,001 to $48,000)
    • 30% on the remaining $12,000 ($48,001 to $60,000)

ACC Earnerโ€™s Levy

  • The ACC Earnerโ€™s Levy is a flat rate applied to all earnings up to a maximum threshold.
  • Rate for 2023-2024: 1.53% of your income, up to a maximum of $139,384.
  • Example: If you earn $100,000, you will pay 1.53% of $100,000, which is $1,530.

How PAYE Works

  1. Employee Responsibilities:

    • When starting a new job, you must complete a Tax Code Declaration (IR330) form and provide it to your employer. This form determines the correct tax code to use for your PAYE deductions.
    • If you have a student loan, you must also complete a Student Loan Deduction (SLD) form to ensure repayments are deducted correctly.

  2. Employer Responsibilities:

    • Employers calculate PAYE deductions based on the employeeโ€™s tax code and income.
    • Employers must file PAYE information with the IRD every payday using the Payday Filing system.
    • Employers are required to pay the deducted amounts to the IRD by the due date (usually monthly or twice a month, depending on the size of the business).

  3. Tax Codes:

    • Tax codes are used to determine how much tax is deducted. Common tax codes include:
      • M: For employees with one job and no student loan.
      • ME: For employees with one job and eligible for the independent earner tax credit.
      • SL: For employees with a student loan.
      • ST: For secondary jobs or income.
    • Using the wrong tax code can result in overpayment or underpayment of taxes.

  4. Payday Filing:

    • Employers must report PAYE information to the IRD every payday, including gross earnings, PAYE deductions, and other relevant details.
    • This is done electronically through payroll software or the IRDโ€™s online portal.

Standard Procedures

  1. Starting a Job:

    • Complete the IR330 form and provide it to your employer.
    • If applicable, complete the SLD form for student loan deductions.

  2. Receiving Your Pay:

    • Your employer will deduct PAYE (income tax + ACC levy) from your gross pay.
    • You will receive your net pay (after deductions) in your bank account.

  3. End of Financial Year:

    • The financial year in New Zealand runs from 1 April to 31 March.
    • The IRD automatically assesses whether you have paid the correct amount of tax. If you have overpaid, you may receive a refund. If you have underpaid, you will need to pay the outstanding amount.

Country-Specific Considerations

  1. Student Loan Deductions:

    • If you have a New Zealand student loan, 12% of your income over the repayment threshold ($22,828 annually or $439 weekly for 2023-2024) will be deducted as part of PAYE.

  2. KiwiSaver Contributions:

    • If you are enrolled in KiwiSaver (New Zealandโ€™s voluntary retirement savings scheme), contributions (3%, 4%, 6%, 8%, or 10% of your gross pay) will also be deducted alongside PAYE.
    • Employers contribute an additional 3% to your KiwiSaver account.

  3. Secondary Income:

    • If you have more than one job, you must use a secondary tax code (e.g., S or ST). This ensures the correct amount of tax is deducted from your secondary income.

  4. Non-Residents and Tax Obligations:

    • If you are a non-resident working in New Zealand, you are still subject to PAYE deductions on your New Zealand-sourced income.
    • Non-residents may also need to file a tax return to ensure compliance with New Zealandโ€™s tax laws.

  5. Self-Employed Individuals:

    • PAYE does not apply to self-employed individuals or contractors. Instead, they pay tax through Provisional Tax or by filing an annual tax return.

General Costs and Implications

  • Cost to Employees:

    • PAYE deductions reduce your take-home pay, but they ensure that your tax obligations are met automatically.
    • The ACC levy is a small additional cost that provides injury cover.

  • Cost to Employers:

    • Employers must invest in payroll systems or services to manage PAYE and comply with payday filing requirements.
    • Employers also contribute to KiwiSaver for eligible employees.

Useful Tips

  1. Check Your Tax Code:

    • Ensure you are using the correct tax code to avoid overpaying or underpaying taxes.
    • Use the IRDโ€™s online tax code calculator if unsure.

  2. Keep Records:

    • Retain payslips and other employment records for reference and to verify PAYE deductions.

  3. Use MyIR:

    • Register for the IRDโ€™s online service, myIR, to track your tax payments, view PAYE deductions, and manage your tax affairs.

  4. Seek Professional Advice:

    • If you have complex tax circumstances (e.g., multiple jobs, overseas income, or self-employment), consider consulting a tax advisor.

Conclusion

The PAYE system in New Zealand is designed to simplify tax compliance for employees by automatically deducting income tax, ACC levies, and other contributions from wages. By understanding the tax rates, procedures, and your responsibilities, you can ensure that your tax obligations are met efficiently. For more information, visit the Inland Revenue Department (IRD) website or contact their support team for assistance.