Tax codes: Student loan special deduction rates

Student loan special deduction rates

Sometimes the student loan repayment code your employee is using means they pay more than they need to for their student loan. For example, if your employee's tax code is SB SL or S SL the standard 10% student loan deductions for their secondary earnings may be too high.

Your employee may give you a student loan special deduction rate certificate that lowers the amount of student loan deductions they're required to have deducted from their earnings. The special deduction rate certificate will specify the rate at which to deduct student loan repayments and for what period to do so.

Only the employer named on the certificate is authorised to make the student loan deductions at the special deduction rate shown.

What the special deduction rate certificate authorises you to do

The special deduction rate certificate may authorise you to do one of the following:

• deduct no student loan repayments at all
• deduct student loan repayments at a rate lower than the standard primary (main) or secondary rate.

Special tax code for the employees PAYE deductions

Sometimes the special deduction rate certificate may also include a special tax code for the employees PAYE deductions.

The special tax code may authorise you to do one of the following:

• deduct no tax at all
• deduct tax at a special rate
• make PAYE deductions using a specific code
• deduct ACC earners' levy only

The certificate will specify the details of what deductions to make and the rates and periods that apply for each deduction.

Special deduction rates on your employer monthly schedule

All you need to do for a special deduction rate is show the student loan deduction in the student loan box on your employer monthly schedule (unless the rate is zero). Also include the usual information such as employee name, IRD number, gross earnings and the tax code your employee is using. If a special tax code is included on the certificate, the tax code on your Employer monthly schedule (IR348) should be changed to STC.

Time period special deduction rates apply

The certificate will include the period that the special deduction rate applies for.

If a special tax code is included on the certificate, the period covered by the special tax code may be different to the special deduction rate. You'll need to take note of each expiry period and adjust your employee's tax or student loan deductions as each periods ends.

Your employee must give you a new special deduction rate certificate when the current one expires for you to continue making deductions at the reduced rate. If they don't, you'll need to start using the tax code they were on before any special deduction rate was granted.  If this tax code is incorrect they will need to complete a Tax code declaration (IR330).

Note
You must deduct PAYE for your employee using the tax code shown on the special deduction rate certificate. If the certificate also includes a special tax code then deduct PAYE at the special rate specified. The special deduction rate certificate does not include any rate for tax or KiwiSaver contributions. Normal deductions based on the employee's tax code continue to apply.

 

 

Date published: 26 Jan 2012

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