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Special tax codes and deduction rates: What to do

Do you make PAYE or student loan deductions that aren’t at the standard rate? Here are some tips from Inland Revenue.

Sometimes an employee will ask you to make tax or student loan deductions from salary or wages that are not at the standard rate.

Those employees will need to show you the appropriate certificate:

  • A special tax code certificate tells the employer what tax deductions to make.
  • A special deduction rate certificate authorises the employer to deduct a different rate of student loan repayments.

Employees with a student loan can also ask you to make extra student loan repayments — if so, they’ll tell you how much more to take out of their pay.

Inland Revenue may also ask you to deduct extra compulsory payments to put towards an employee’s student loan.

The special tax code or special deduction rate is a tax rate or student loan deduction rate worked out to suit an individual’s circumstances.

The special tax code or special deduction rate is a tax rate or student loan deduction rate worked out to suit an individual’s circumstances.

What do these certificates mean?

The certificate 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 rate.
  • Deduct ACC earners' levy only.
  • Deduct student loan repayments at a rate lower than the usual rate.
  • Deduct no student loan repayments at all.

Sometimes the certificate may contain both a special tax code and a special deduction rate for the employee’s student loan.

What’s on the certificate?

There is some basic information you must check to make sure the certificate is valid:

  • Is the name on the certificate the name of the person working for you?
  • Does the IRD number match that on their tax code declaration (IR330) (external link)
  • Is it signed by an Inland Revenue manager?
  • Is it for the current tax year?
  • Does it show the rate at which tax should be deducted?
  • Does it show any student loan obligations?
  • Does it have a start date and expiry date?

What goes in the payroll records?

All you need to do for a student loan special deduction rate is show the amount of student loan deduction for that employee in the student loan box of your employer monthly schedule – or if the rate is zero, leave the box blank.

Don’t forget to also include all the usual information for your employee such as their name, IRD number, gross earnings, PAYE and KiwiSaver deductions, and the tax code they’re using.

If the employee is using a special tax code, make sure you change their tax code on your employer monthly schedule to STC.

Some payroll software can be a bit tricky to set up so that all the deductions are calculated correctly. It’s best to contact your payroll provider if you have any problems.

What happens once certificates expire?

Once a special tax code certificate expires, the employee must show you a new certificate. Or they can complete a new IR330 and select the appropriate tax code.

When a student loan special deduction rate certificate expires, you'll need to make deductions at the standard deduction rate based on their tax code, unless they give you a new certificate.

Expiry dates may differ, so it’s a good idea to keep a note of them. For example, the special deduction rate for your employee's student loan may be different from the expiry date for the special tax code.

You'll need to take note of each expiry period and adjust your employee's tax or student loan deductions as each period ends.

More information available on Business.govt.nz or Inland Revenue's website

More information available on Business.govt.nz or Inland Revenue's website

Payroll deductions Business.govt.nz

PAYE Business.govt.nz

Student loan repayments (external link) Inland Revenue

PAYE/KiwiSaver calculators (external link) Inland Revenue

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