Income tax rates and Working for Families Tax Credits have changed
From 1 October 2008 income tax rates and Working for Family Tax Credits are changing. We're currently updating our websites and publications to reflect these changes. For a summary of all the changes please see the links below:
- Income tax rates
- Salary or wage earner
- Work out how much tax you'll pay from 1 October
- Paying too little or too much tax
- Secondary tax payer
- Special tax code
- NZ Superannuitant
- Provisional tax payer
- Employer
- Workers engaged under the Recognised Seasonal Employer (RSE) scheme
- Tax on interest and investment income
- Working for Families Tax Credits
- Annual rates
Income tax rates
The low income tax credit (formerly rebate) has been removed from the 2008-09 tax year and a new bottom tax rate of 12.5% on income up to $14,000 introduced. Income thresholds for the 21%, 33% and 39% rates also increase over the next three and a half years, as set out below.
| Rates from 1 April - 30 September 2008 | New rates from 1 October 2008 | ||
|---|---|---|---|
| Income to $9,500 |
15%*
|
Income to $14,000 |
12.5%
|
| $9,501 - $38,000 |
21%*
|
$14,001 - $40,000 |
21%
|
| $38,001 - $60,000 |
33%
|
$40,001 - $70,000 |
33%
|
| $60,001 and over |
39%
|
$70,001 and over |
39%
|
*Includes the low income tax credit. The statutory rate on income under $38,000 is 19.5%. The low income tax credit gave an effective rate of 15% for income under $9,500 and 21% for income between $9,501 and $38,000.
| From 1 April 2010 | From 1 April 2011 | ||
|---|---|---|---|
| Income to $17,500 |
12.5%
|
Income to $20,000 |
12.5%
|
| $17,501 - $40,000 |
21%
|
$20,001 - $42,500 |
21%
|
| $40,001 - $75,000 |
33%
|
$42,501 - $80,000 |
33%
|
| $75,001 and over |
39%
|
$80,001 and over |
39%
|
The introduction of new income tax rates part-way through the income year means an average of the new and old rates needs to be applied. This annual rate represents the actual amount of income tax that applies in the 2008-09 income year.
The rates also apply to school children who are working and to employees who make PAYE payments direct to Inland Revenue.
The income tax changes will not affect KiwiSaver or student loan deductions, or beneficiary payments.
Salary or wage earner
If you're a salary or wage earner you won't have to do anything. Your employer will use the new PAYE rates to calculate how much PAYE to deduct from your salary or wages starting from the first pay period that ends on or after 1 October 2008.
Estimates of reduced tax
The table below gives an estimate of the reduction in tax deducted on a weekly basis from 1 October 2008.
| If your annual taxable income is ... | then the estimated reduction in tax deducted weekly is ... |
|---|---|
| $20,000 - $35,000 |
$11.92
|
| $40,000 - $60,000 |
$16.54
|
| $65,000 |
$22.31
|
| $70,000 or over |
$28.08
|
Paying too little or too much tax
Although pay-as-you-earn tax (PAYE) is withheld by your employer and paid over to us throughout the year, your final end-of-year tax obligation is based on the income you have earned on an annual basis, for example, the total of your income at the end of the tax year (31 March 2009).
Usually the PAYE system accurately deducts the correct amount of tax however when tax rates are changed part way through a year (as is happening this year) a person can end up paying too much or too little income tax.
At the end of the tax year (after 31 March 2009) you can use the Personal tax summary calculator on our website along with your annual earnings or summary of earnings to work out whether you have paid too much or too little tax. If you want to request a personal tax summary, you can do this from July 2009. Our calculator and the personal tax summary work out the correct amount of tax due based on all your taxable income.
Secondary tax payer
While the Government has reduced the bottom tax rate, a matching secondary tax rate has not been introduced so if you're a secondary tax payer you may want to check you're still using the correct rate from 1 October 2008.
You may find you have paid too much tax on your total income at the end of the income year, especially if you earn $14,000 or less. If you think you may have paid too little or too much tax, find out if you can get a tax refund and request a personal tax summary from us at the end of the income year.
Secondary tax thresholds
Employees can elect a new secondary tax code if they believe that their annual income will be below the new threshold.
From 1 October 2008 to 31 March 2010 the secondary tax thresholds will be:
| Annual income range | Tax code | Tax rate |
|---|---|---|
| 0 - $40,000 |
S
|
21%
|
| $40,001 - $70,000 |
SH
|
33%
|
| $70,001 or over |
ST
|
39%
|
Special tax code
If you have a special tax code, we've checked your tax code calculation to make sure you'll still have the right amount of tax deducted after 1 October 2008. If the tax changes have affected your special tax code rate, we have issued you with a new certificate which you'll need to give to your employer(s).
NZ Superannuitant
Work and Income will use the new PAYE rates to calculate how much tax is to be deducted from your NZ Superannuation payments starting from the first payment you receive after 1 October 2008. If you have any questions about your NZ Super please contact Work and Income.
Provisional tax payer
Your existing calculations apply until 30 September 2008. However if you:
- use the standard option, a new formula will apply to instalments due after 1 October 2008
- use the estimate option, you can decide to apply the new annual rate for the 2008-09 income year
- use the ratio method we'll recalculate the ratio for you and advise you accordingly.
Provisional tax payer standard method
If you pay your provisional tax by the standard method, the formula to calculate your provisional tax liability changes from 1 October 2008. You will need to reduce your residual income tax (RIT) by $730 before applying the standard uplift.
The new formula for the 2009 year is:
(2007-08 RIT - $730) x 105% or 110% if you are using 2006-07 RIT.
You may want to discuss your options with your tax agent or accountant.
Employer
We've issued new PAYE tables and updated the PAYE calculator. The following questions and answers may also be helpful.
Employer questions and answers
What do I have to do?
You need to start using the new PAYE rates to calculate pay periods ending on or after 1 October 2008.
What impact do the new rates have on fringe benefit tax?
The multi-rate fringe benefit rates for 2008-09 have changed. For the 2008-09 year the following rates will apply:
| Income range | Tax rate |
|---|---|
| $0 - $8,194 |
0.1594
|
| $8,195 - $11,940 |
0.2012
|
| $11,941 - $30,900 |
0.2658
|
| $30,901 - $32,360 |
0.3699
|
| $32,361 - $45,760 |
0.4925
|
| $45,761 - $52,160 |
0.5625
|
| $52,161 or over |
0.6393
|
You still have the option of paying fringe benefit tax of 64% on all fringe benefits rather than applying the multi-rates.
I have an employee who has a secondary tax code - what do I need to do in this case?
You don't have to do anything. No new matching secondary tax code has been introduced.
However, because of the change to income thresholds you may want to check if your employee is still using the correct code after 1 October 2008.
Employees can elect a new secondary tax code if they believe that their annual income will be below the new threshold.
The secondary tax thresholds from 1 October 2008 to 31 March 2010 are:
| Income range | Tax code | Tax rate |
|---|---|---|
| $0 - $40,000 |
S
|
21%
|
| $40,001 - $70,000 |
SH
|
33%
|
| $70,001 or over |
ST
|
39%
|
I have an employee who has a special tax code - what do I need to do in this case?
Don't do anything differently unless the employee gives you a new certificate from us.
How do I handle extra pays?
Lump sum payments made to employees are known as extra pays. Tax on extra pays is currently withheld at 21%, 33% and 39%. These rates aren't changing. However employers and PAYE intermediaries will need to use the new thresholds to calculate the annualised pay of employees who receive extra pays. This applies from the first pay period that ends on or after 1 October 2008.
Thresholds from 1 October 2008 to 31 March 2010 are:
| Income range | Tax rate |
|---|---|
| $0 - $40,000 |
21%
|
| $40,001 - $70,000 |
33%
|
| $70,001 or over |
39%
|
How do the new rates affect the employer superannuation contribution tax (ESCT) that I calculate?
You'll need to use the new rates and threshold amounts for employer superannuation contribution tax (ESCT) to determine how much tax to withhold on employer superannuation contributions. These will apply from the first pay period that ends on or after 1 October 2008.
From 1 October 2008 to 31 March 2010 the rates and thresholds for employer superannuation contribution tax are:
| Income range | Tax rate |
|---|---|
| $0 - $16,800 |
0.125
|
| $16,801 - $48,000 |
0.210
|
| $48,001 or over |
0.330
|
New tax rate for workers engaged under the Recognised Seasonal Employer (RSE) scheme
As a result of the 1 October changes the special tax rate for workers engaged under the RSE scheme, currently 20.4 cents in the dollar, will change too.
The new rate of tax is a flat rate of 18.4 cents in the dollar (made up of 17 cents PAYE and 1.4 cents ACC earner premium).
From 1 October 2008, please deduct tax at the new rate when you pay your RSE workers. It's not necessary for the RSE employees to complete a new Tax code declaration (IR330) form.
Please continue using the new rate until further notice and note that it only applies to workers engaged under the RSE scheme.
The special tax rate is designed to help RSE workers account for their tax obligations throughout the year. When they leave New Zealand, your workers won't have any additional tax to pay, and they won’t need to file an income tax return.
Tax on interest and investment income
The current resident withholding tax rates on interest income will continue to apply for the time being while the government discusses the impact of the changes with the banking and financial services sector.
The current RWT rates and thresholds are:
| Annual income range | RWT rate |
|---|---|
| $0 - $40,000 |
19.5%
|
| $40,001 - $70,000 |
33%
|
| $70,001 or over |
39%
|
You may find you have paid too much resident withholding tax on your interest income at the end of the income year, especially if you earn $14,000 or less. If you think you may have paid too little or too much tax you can use the Personal tax summary calculator or request a personal tax summary from us at the end of the income year.
The PIE tax rates and thresholds will remain the same for the time being while the government discusses the impact of the tax rate changes with the managed funds industry.
Working for Families Tax Credits
From 1 October 2008 the family tax credit rates and income abatement threshold will increase to take account of inflation.
If you receive your Working for Families Tax Credit weekly or fortnightly, you'll automatically receive the new rates from your first payment after 1 October 2008. The table below shows the existing maximum weekly family tax credit rates and the new rates that apply from 1 October 2008.
| Age / number of children | Rate from 1 April - 30 September 2008 | New weekly rate from 1 October 2008 |
|---|---|---|
| First child if under 16 |
$82.00
|
$86.00
|
| First child if 16 or over |
$95.00
|
$99.00
|
| Subsequent child rate if under 13 |
$57.00
|
$59.00
|
| Subsequent child rate if 13 to 15 |
$65.00
|
$68.00
|
| Subsequent child rate if 16 or over |
$85.00
|
$89.00
|
If you receive your Working for Families Tax Credits in a lump sum after the end of the tax year, we'll use an average of the old and new rates to work out your correct entitlement. We'll also use this average to work out the end of year square up for people who receive their Working for Families Tax Credits weekly or fortnightly.
The table below shows the annual family tax credit rates used from 1 April 2008 - 30 September 2008 and the new annual rates that apply from 1 October 2008 - 31 March 2009.
| Age / number of children | Annual rate from 1 April - 30 September 2008 | Annual rate from 1 October 2008 - 31 March 2009 |
Annual rate for 2008/09 |
|---|---|---|---|
| First child if under 16 |
$4,264
|
$4,487
|
$4,376
|
| First child if 16 or over |
$4,940
|
$5,198
|
$5,069
|
| Subsequent child rate if under 13 |
$2,964
|
$3,119
|
$3,042
|
| Subsequent child rate if 13 to 15 |
$3,380
|
$3,557
|
$3,469
|
| Subsequent child rate if 16 or over |
$4,420
|
$4,651
|
$4,536
|
The income abatement threshold increases from $35,000 to $36,827 from 1 October 2008. Because the threshold change is mid-year, an annual threshold of $35,914 will apply for the 2008-09 income year.
You can use our Working for Families Tax Credits calculator to get an estimate of what your new entitlement will be.
Annual rates
The annual tax rate schedule for the year from 1 April 2008 to 31 March 2009 is as follows:
| Income range | Annual tax rate applied |
|---|---|
| $0 - $9,500 |
13.75%
|
| $9,501 - $14,000 |
16.75%
|
| $14,001 - $38,000 |
21%
|
| $38,001 - $40,000 |
27%
|
| $40,001 - $60,000 |
33%
|
| $60,001 - $70,000 |
36%
|
| $70,001 and higher |
39%
|
Date published: 27 Nov 2008
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