Secondary tax codes explained

Why secondary tax codes exist

New Zealand runs a progressive income tax system. Your first $15,600 is taxed at 10.5%, the next slice at 17.5%, and so on up to the 39% top rate above $180,000. Those brackets only make sense when one payer — usually your main employer — can see your whole annual income and apply the brackets correctly in sequence.

The problem is that your second employer has no idea what your main job pays. If they used the standard M code and started you at the bottom of the brackets, every additional dollar of your "real" combined income would be under-taxed. At the end of the year IRD would reconcile it all and send you a bill.

Secondary tax codes solve this by telling the second payer: "don't start from the bottom of the brackets — deduct tax at a flat rate that matches where this income actually lands, on top of the income the person already has." The flat rate isn't a penalty. It's an attempt to approximate your true marginal rate without your side employer having to know about your main job.

The five secondary tax codes

Each code corresponds to a band of total annual income from all sources combined — not to the income from the second job alone. That's the single most common mistake. If your main job pays $70,000 and your side gig pays $5,000, your combined income is $75,000 and the correct secondary code is SH, not S.

Source: Inland Revenue, Secondary tax codes. Thresholds current for the 2025/26 tax year.

Picking the right code

Every time you start a new source of income, the payer will ask you to complete an IR330 tax code declaration. Your primary job (the biggest income source, usually) should stay on M or ME. Every other source — second job, casual work, a board position, a pension alongside employment — needs a secondary code.

The mental shortcut is simple. Add up what you expect to earn this tax year from everything. Find that total in the table above. That's your secondary code. It doesn't matter whether the side gig pays $2,000 or $40,000 — the code is determined by the combined total, because the code's job is to approximate your true marginal rate on that extra slice of income.

If your combined income will sit close to a threshold, lean toward the higher code. Over-paying by a few dollars each week and getting a small refund at year-end is far less painful than under-paying and getting a bill in February.

Worked example: $60k main job + $15k side gig

Consider James. He earns $60,000 on his primary job (M code) and picks up $15,000 of weekend contracting over the year. Combined, he's on $75,000. That combined figure sits inside the SH band, so the contract payer deducts tax at a flat 30% on the side income, plus the ACC earner levy of 1.67%.

The "correct" tax on $75,000 — applying the proper progressive brackets — is $15,973. James's combined deductions of $15,973 are very close to the right number; the year-end auto-assessment will tidy up a $0 refund without any drama. The secondary code did its job.

This is the honest story about secondary tax. Most of the time, for most people, the flat rate lands within a few dollars a week of the correct marginal rate. It's not a penalty — it's a sensible guess that IRD later reconciles exactly.

When you over-pay or under-pay

The flat rate is an approximation. Two situations cause it to drift out of step with reality.

Over-paying (you'll get a refund)

You pay too much via secondary tax when the flat rate sits above your true marginal rate for that slice of income. This is very common for people whose combined income straddles a bracket — for example a main job paying $48,000 plus a side gig of $10,000. The combined $58,000 sits in the SH band, so the side payer deducts 30% on every dollar. But part of that extra $10,000 should have been taxed at only 17.5% (the portion up to $53,500). The 30% flat is "right on average, wrong in the middle." IRD refunds the difference at year-end.

Under-paying (you'll owe a bill)

You pay too little when the combined income pushes you into a higher bracket than the code expected. Classic example: main job $45,000 plus side gig $15,000. If you picked S (17.5%) because the main job alone was clearly under $53,500, the combined $60,000 actually puts you in the SH band. You've under-collected on the side gig all year, and a bill lands in February. Always add up the full expected total before picking the code.

Two jobs both on M

The other classic is having two simultaneous employers both using the M code because no-one told the second one it was a secondary source. Each employer gives you the benefit of the $15,600 low-income threshold — so $31,200 of your combined income ends up taxed at only 10.5% instead of a mix of 10.5% and 17.5%. The tax bill at year-end can be eye-watering. Fix it as soon as you notice; ask the second payer to switch to S, SH, ST or SA.

Tailored tax codes

If the standard secondary rate leaves you systematically over- or under-taxed — common for people with three or more income sources, irregular hours, or income that fluctuates heavily — you can apply to IRD for a tailored tax code (sometimes called a "special tax code"). IRD calculates a bespoke percentage based on your exact expected income mix, and issues a certificate you give to the payer.

Apply via myIR under "I want to…" → "More…" → "Apply for a tailored tax code." You'll need reasonable forecasts of what each income source will pay for the rest of the year. The certificate is valid for the tax year in which it's issued, and you re-apply in April if you still need one. IRD is generally willing to approve them for anyone who can show a standard code is producing a material mismatch.

For the vast majority of two-income Kiwis, a standard SH or ST code is close enough that a tailored code isn't worth the paperwork. Ask your accountant, or drop your numbers into the FiguredNZ tax refund estimator first — if the projected refund or shortfall is small, you don't need a tailored code. If it's consistently hundreds of dollars off quarter after quarter, apply.

What to do now

Four things, in order. First, list every current income source: main job, side jobs, pensions, regular payments from a benefit. If there are two or more, exactly one is primary (M or ME); the rest need a secondary code.

Second, sum the expected annual income from all of them. Find that number in the table above. That's the secondary code every non-primary payer should be using.

Third, if any payer is using the wrong code, complete a fresh IR330 form and give it to them. You don't need IRD's permission; your payer updates the code in payroll the next cycle. No back-dating is required — year-end reconciliation handles it.

Fourth, run your numbers through the FiguredNZ tax refund estimator to see how much the current setup will refund or bill you at year-end. If the gap is large, consider a tailored tax code for the remainder of the year.

Quick answers

Am I being taxed more because of secondary tax?

No. You're taxed at a flat rate instead of the stepped brackets — but the flat rate is chosen to approximate your true marginal rate on that slice of income. Over the full year, the total tax paid should be very close to what you'd have paid with one employer earning the combined amount. Year-end reconciliation refunds or charges any small difference.

I have three jobs. Which code for each?

One is primary (M or ME). The other two both use a secondary code based on your combined total from all three. So a $40k main + $15k second + $5k third gives combined $60k → SH (30%) on both secondary payers.

Do I need to tell IRD when I change my secondary code?

No. You give the payer a new IR330 and they update payroll directly. IRD reconciles everything at year-end regardless. You only contact IRD directly to apply for a tailored tax code.

Does secondary tax apply to contract work?

If the contractor work is paid under PAYE (with tax deducted by the payer), yes — a secondary code applies exactly as above. If you invoice with GST and handle your own tax via provisional payments or AIM, there's no PAYE code involved at all; you're a sole trader, and secondary tax logic doesn't apply. See the contractor vs employee guide for the distinction.

What if my student loan or KiwiSaver is on the secondary job?

Student loan repayments (SL) and KiwiSaver contributions are separate from the tax code and are deducted regardless of M vs S codes. You can tell each payer individually whether to deduct student loan and whether to run KiwiSaver on that income. The tax code itself only controls PAYE.

Is the Independent Earner Tax Credit (IETC) available on secondary income?

No. IETC attaches to the primary tax code only (M+IETC or ME+IETC). You can't add it to a secondary code. As long as your combined income is between $24,000 and $70,000 and you meet the other eligibility rules, applying IETC via the primary code captures the full $520 entitlement regardless of how many jobs you have.