Payroll News - 2004
Issue 69 November 2004
Welcome to Payroll News
In this issue we talk to you about the different tax codes your employees should use and deducting extra amounts for overdue tax.
If you have an employer topic you'd like to see covered in this newsletter please write to the Editor, Payroll News, PO Box 2198, Wellington or email us at payroll.news@ird.govt.nz and we'll aim to cover the topic in a future edition.
Please pass this newsletter on to the person who deals with the payroll in your business.
Tax code - which one to use?
We've been asked questions about the different tax codes on our Tax code declaration (IR330) form. Often, employees are unsure which tax code to use when completing their form and may ask your help. So here we explain the common tax code options.
First, you need to determine what the tax code is for. The most common ones could be for:
- primary employment
- secondary employment.
What tax code to use for primary employment?
Most employees have one regular job that is their main or only source of income. This includes income from taxable pension, benefit and student allowance. The tax code to use for primary employment must be one of the following:
| Tax Code | Description |
| M | Main source of income. This should be used for one job only at any one time. |
| M SL | Main source of income with a student loan (SL). This should be used for one job only at any one time. |
| M | Main source of income if income from all sources is $9,880 or less. This should be used only if an employee works full-time (more than 20 hours per week). |
What tax code to use for secondary employment?
Employees who have other sources of income should use the secondary tax codes. This applies in situations where an employee has already used primary employment tax code (M, M SL or ML). In any other job, the tax code to use for secondary employment must be one of the following:
| Tax Code | Description |
| S | Secondary source of income. This should be used if total income from all sources is likely to be less than $38,000. |
| S SL | Secondary source of income with student loan (SL). This should be used if total income from all sources is likely to be less than $38,000 and above the student loan repayment threshold (currently $16,172). |
| SH | Secondary source of income and total income from all sources is likely to be higher than $38,000. |
| S SH | Secondary source of income with student loan (SL). This should be used if income from all sources is likely to be more than $38,000. |
| ST | Secondary sources of income and total income from all sources is likely to be more than $60,000. |
| S ST | Secondary source of income with student loan (SL). This should be used if total income from all sources is likely to be more than $60,000. |
Example
An employee works at two different jobs earning a total income of $46,000.50. He used an M tax codes for both jobs. PAYE deductions for his situation are shown below.
| Employee | Tax Code | F/nightly wages | F/nightly PAYE | Wages per annum | Total PAYE |
| Job 1 Job 2 |
M M |
$384.65 $1384.60 |
$63.32 $285.32 |
$10,000.90 $35,999.60 |
$1,646.32 $7,418.32 |
| Total |
$46,000.50 |
$9,064.64 |
| Total PAYE amount |
$9,064.64 |
| less 1.2% ACC earners' levy |
$ 552.00 |
| Total tax deduction |
$8,512.64 |
Tax payable on total income of $46,000 is $10,050 calculated as follows:
|
$ 7,410 |
($38,000 x 19.5%) income up to $38,000 taxed at 19.5% |
|
$ 2,640 |
($8,000 x 33% ) income from $38,001 up to $46,000 taxed at 33% |
| $10,050 | Total tax payable on $46,000 |
In the above example, the employee has underpaid tax of $1,537.36. The employee should have used the SH tax code for his second job, as his combined income is more than $38,000 but less than $60,000. Had the combined income been more than $60,000 the correct tax code for the second job would have been ST.
Other tax code options
If your employee receives any of the following types of income, the following tax codes must be used:
| Tax Code |
|
| CAE | This code should be used for employees who are casual agricultural workers, shearers and shearing shedhand. These people are engaged in casual seasonal agricultural work on a day-to-day basis for up to three months. |
| EDW | This code should be used for election day workers employed on a casual basis immediately before, on or immediately after polling day. |
| STC | Employees who have been issued with a special tax code for their tax deductions should use this code. You must sight the certificate and keep a copy for your records. |
| WT | This code should be used for workers who fall under the withholding tax requirements. This code is for contract workers, not for salary and wage workers. |
If you need further information on the different tax codes you can refer to the Tax code declaration (IR330) form, or call us on 0800 377 772.
Notice to deduct amount from your employees' wages
From time to time we may require you to deduct an amount (for overdue tax) from your employee's wages. This will usually be for employees who haven't made arrangements for payment of these outstanding amounts.
If we require you to deduct these extra amounts we will send you a notice advising you of this and telling you what to do. If you receive one of these notices you are legally obliged to make the extra deductions as shown.
These extra deductions are in addition to the usual, PAYE and other deductions you make from the employees' pay, and are payable to us by the end of each calendar month.
Do not include these extra deductions on your Employer monthly schedule (IR348) or use the Employer deductions (IR345) or (IR346) forms to pay them. Instead, complete the payment slip at the bottom of the notice and send to us with the payment. Please do not send cash.
The extra deductions must continue until:
- the total amount owing has been deducted and paid to Inland Revenue, or
- you receive a notice from Inland Revenue telling you to stop making the deductions, or
- the employee stops working for you. (You will need to advise us of the employee's finish date straight away.)
If you require any further assistance, please contact us on the telephone number at the top of the deduction notice.
Provisional tax due
For those who pay provisional tax and have a standard balance date of 31 March, your second instalment of 2005 provisional tax is due on 7 November 2004. As this day falls on a Sunday, all payments received on or postmarked 8 November 2004 will be treated as being received in time.
You can make your payment:
- electronically through your bank
- by sending us your cheque and payment slip in the reply envelope
- by taking the payment slip into your nearest Westpac bank.
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Date published: 23 Nov 2004
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