The Inland Revenue Department (IRD) collects tax from citizens and residents who earn income from a job or business activity. Some people also need to pay tax from income they earn overseas.
Income tax in New Zealand is a progressive tax system with a number of annual income thresholds. This means that the tax rate changes as each threshold is reached. You pay:
- 12.5% tax for the first $14,000
- 21% tax for salary earned between $14,001 and $40,000
- 33% tax for salary earned between $40,001 and $70,000
- 39% tax for salary earned from $70,001 and over.
Individual Income Tax - Inland Revenue Department website
ACC Earner Levy
The ACC earner levy is a 1.4% levy applied to every dollar earned, and is in addition to the tax rates shown above. This levy is used to fund the Accident Compensation Corporation (ACC) and is a legal requirement.
Tax Code Declaration
People in paid employment must declare their tax code to their employer. Employers can provide a form to help employees work this out. When people do not declare their tax code, their employer or bank will deduct the 'no declaration' rate of tax (45%) from their salary. This rate is much higher than the standard deduction rates and will significantly reduce their net income.
Tax Code - Inland Revenue Department website
No Tax-free Exemptions
Anyone earning money in New Zealand, regardless of immigration status, must pay tax. This status is called 'New Zealand tax residency for the purposes of taxation'. There are no tax-free circumstances for people earning money in New Zealand.
Obtaining an IRD Number
Before you can start a job, you need an IRD number. This is a unique 8-digit identifying number issued by the Inland Revenue Department. To apply for an IRD number, you need to provide the IRD with proof of your identity. There is a list of acceptable identity documents on the IRD website.
IRD Number - Inland Revenue Department website
Pay As You Earn (PAYE) Tax
PAYE is the way that salary and wage earnings are taxed. The name 'pay as you earn' describes how it works: an instalment of income tax is deducted each time an employee receives payment for work done. This may be weekly, fortnightly or monthly. Employers deduct the tax and the ACC earner levy of 1.4% on behalf of their staff.
Submitting a Tax Return
A personal income tax return is an official form on which a person writes the details of his/her income and expenses. The IRD uses this information to assess tax liability. Because of PAYE tax, many people do not need to file a tax return (as their tax liability is assessed every time they receive wages or salary from their employer). To check if you need to file a tax return visit the IRD website.
Income Tax Returns - Inland Revenue Department website
Working for Families Tax Credits
Working for Families is a package that brings together several tax and income support benefits. Only New Zealand residents and citizens are eligible to receive them. The monetary benefit is delivered to parents and principal caregivers.
There are three different components that make up Working for Families, with Work and Income New Zealand providing the first two, and the third being provided by IRD.
- Childcare and OSCAR subsidy This support can help parents to pay for schooling their children. Schools - Financial Support
- Accommodation Supplement This benefit is aimed at making housing more affordable for low and middle-income families. For more information, contact Work and Income on 0800 559 009.
- Family Assistance Family Assistance has three parts: Family Support, In-Work Payment, and Parental Tax Credits. Family Support and the In-Work Payment are provided based on the income of the principal child carers. The difference is that a parent or principal caregiver who is not working is not eligible for the In-Work Payment.
IRD has more information about eligibility. The Working for Families website has tables of entitlement that show the amount of financial assistance a family can receive based on their income and the number of children in the family.
