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New secondary tax rate announced

Michael Cullen

7 October, 2008
New secondary tax rate announced

Finance Minister Michael Cullen and Revenue Minister Peter Dunne announced today that the Cabinet yesterday agreed to a new, bottom secondary tax rate of 12.5 per cent.

The decision flows from the major package of personal tax cuts announced in Budget 2008.

"Today's announcement ensures that those with second incomes do not have too much tax deducted from their pay packet," Dr Cullen said.

"Secondary tax rates are not intended to tax income earned from two or more jobs more heavily than the same income derived from a single job. Rather they seek to ensure taxpayers do not inadvertently end up with a tax bill at the end of the tax year." Hon Peter Dunne said.

It is important to note that introducing a new secondary rate is essentially about timing. Anyone working a second job who is concerned that they have been over-taxed, should contact Inland Revenue. The new rate comes into effect on 1 April 2010.


Reductions to the secondary tax codes are not actually tax cuts. Tax obligations remain the same, the decision to lower the secondary tax rates reduces the chances that a person will be over taxed of the course of the year. Where this occurs tax payers are, and will remain, entitled to a tax refund at the end of the tax year.

A secondary tax code is the rate that is applied to withhold tax from a person's employment income that he or she earns from a second job. Income from a person's main job has tax withheld using the progressive income tax rates and thresholds. A secondary tax code reflects the tax rate that people face on the last dollar of their total income.

For example, a person may earn $30,000 before tax from primary employment income. Tax is withheld by the employer on this income according to the progressive income tax scale. Under this example and using the new tax rate structure the employer withholds tax at a rate that reflects that the first $14,000 is taxed at 12.5% and the next $16,000 is taxed at 21%. If the person earned an additional $4,000 from a second job the employer would withhold tax using a secondary tax rate that reflects the tax rate on the last dollar of total income earned - 21%.

The current secondary tax codes are 21%, 33% and 39%. The new bottom rate will be added to this range of rates.

A 12.5% secondary tax code is being introduced to cater for low income people that have a second job; such as New Zealand superannuitants and beneficiaries. This should ensure that tax is not over-withheld on their secondary employment income. The 12.5% secondary tax code is taking effect from 1 April 2010 in order to coincide with the increase to $17,500 of the income threshold at which the 21% tax rate starts applying. This reduces the likelihood that low income people will face tax bills due to having too little tax withheld on their secondary income.


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