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Secondary tax

How do you think secondary tax could be improved?

“Secondary tax” is the name given to the tax rules which apply when a person has more than one job. A common misconception is that secondary tax is unfair, because tax is deducted from a person's earnings from a second job at a higher rate than their first job. This explanation and diagram show why that difference in tax rates is correct.

A person’s first job, like Roxy's in this example will be taxed at a range of rates because lower levels of income are taxed at lower rates. If Roxy was to get a second job, it would be taxed at a flat rate, as if she earned interest income. This flat rate would be 30% or 33%, depending on how much Roxy expected to earn from all her sources of income. If Roxy earned $50,000 from her first job and $15,000 from her second job she would have a secondary tax rate of 30%. The correct amount of tax would be deducted from her earnings from her second job.

The secondary tax rules would not work so well if Roxy earned more than $20,000 from her second job. Then Roxy would have a secondary tax rate of 33%, because she would expect to earn more than $70,000 overall. The flat rate of 33% would mean too much tax would be deducted from the first $20,000 Roxy earned from her second job.  This would happen because her income from her second job would take her total income over an income tax rate threshold.

Improving the timeliness and accuracy of PAYE information, for example through businesses using software which submits the information directly to Inland Revenue, will improve Inland Revenue's ability to make pro-active interventions where incorrect tax codes are being used. It will also enable Inland Revenue to suggest the use of a special tax code, (a deduction rate tailored to an individual's circumstances) to a person when income from their second job takes them over an income tax rate threshold.

Questions

1.  Do you support the Government’s vision for reducing existing pressure points around secondary tax through improved in-year administrative interventions, which would be enabled as a result of Inland Revenue receiving more timely PAYE information?

2.  While maintaining our progressive personal income tax rate structure, do you have any better suggestions for reducing pressure points around secondary tax by improving the accuracy of withholding?

Comments

Martin Hay
If information is coming back to employers from the department - could the % tax deduction be prepopulated on the monthly returns

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8 months ago
David Williamson
Secondary tax works okay provided the correct rate is used

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8 months ago
Carole Stewart
Secondary Tax penalises those who work more than one small job to make ends meet. In the UK each person has their own Tax threshold and is individually tax free up to that then they pay one Tax rate for all other income.

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8 months ago
Jessica
I think there shouldn't be secondary tax. Why should someone who is happy or needs to work 2+ jobs be taxed more? We should be thanking them for getting out there and doing everything they can to be apart of the working world. Some people who also have to work more than 1 job do so because they need the extra money to be able to get through week by week and take care of their families, and then we go and tax them more? It is just ridiculous!! What you get taxed in your first job should be the same whether you have 1 or 5 jobs. This would also make things much easier for everyone too. One set tax rate throughout.

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8 months ago
Carole Stewart
I absolutely agree with Jessica - the secondary tax system is so unfair on those who most need help.

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8 months ago
michele hunt
I absolutely agree that it is a very unfair system which affects the most disadvantaged and hardest working people. There is no tax free allowance as in other countries which is most needed for those that are on lower incomes and they are often the ones working several part time jobs. It doesn't matter how little you earn, if it is second job you get a secondary tax rate even though the overall earnings may be minimal. Get rid of secondary tax, surely it can't be hard with new systems for IRD to see what there total earnings are from all jobs and indicate a tax rate when the reach a tax threshold?

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8 months ago
Administrator
The existing secondary tax rate system aims to tax someone who earns $50,000 in total from two jobs, the same as someone who earns $50,000 from just one job. The second job is taxed at a higher rate because of our progressive tax system which taxes low earnings at a lower rate than higher earnings. The main job gets the ‘benefit’ of the lower tax rates and the second job is taxed at the higher (marginal) rate. We have explained how it works here: https://payeandgst.makingtaxsimpler.ird.govt.nz/learn-more-tell-us/progressive-tax-rates-and-our-withholding-system

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8 months ago
Jane Dixon
It's all very well talking about someone earning $50k per year but what about people who have 3 or 4 jobs, earning a total of less than $30k. ? It would be great if their tax rate could be in line with their monthly earnings, so they weren't taxed at the higher rate.

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8 months ago
Leonie
In the example you give you have omitted to calculate a lesser income - say for example Roxy worked 3 jobs and earned 15k from each, her second and third jobs would be taxed at a secondary rate of 30% . I think this is where people think the secondary rate is unfair (myself included) I am for abolishing the secondary rate.

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8 months ago
Martin Etherington
Actually the second and third jobs should be taxed at 17.5% (S tax code), because the total annual earnings is under $48,000. If they have been taxed at 30% (SH tax code) then they will end up with a tax refund at the end of the year.

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5 months ago
Deborah
Tax rates need to be determined by earning tiers not how many jobs you have. As full time positions become more limited workers are forced to take multiple part time work and their weekly take home is penalised. My 18 year old, still at school daughter, works 2 jobs of approx 15 total hours per week at minimum wage, one is taxed at secondary rate. Tax rate should applied at income levels not number of jobs.

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8 months ago
Brad
Secondary tax should be removed entirely. If somebody wants to work more, they should be able to do so without penality.

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8 months ago
Andrea
The above comments display clearly how misunderstood secondary is. Further to the administrator comment, you are taxed on your total income. I am a working pensioner - my 26hr work wage is taxed at normal rates and my super at "S" code which is my marginal rate of 17% (no ACC as "unearned" income). If I earn more than $48000 then I will pay the balance of the tax on year end calculation - this is not paid until the following year. The secondary tax system is fair, based on total earnings. It saves people having to make extra tax payments at year end when they have probably not got the money to do so. The rates are (from IRD website) as follows, based on total income: If your annual income from all sources is ... then your secondary tax code is... and your secondary tax rate (including 1.45% earners' levy) is .. $14,000 or less SB 11.95% between $14,001 and $48,000 S 18.95% between $48,001 and $70,000 SH 31.45% between $70,001 and $113,768 (plus ACC) ST 34.45% more than $113,768 (no ACC) ST 33% I cannot see any need to make changes to this, except that IRD should monitor accrued annual earnings in the way that they do for working for families recipients and advise if you appear to be earning more than the current marginal tax rate on an annualised basis.

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8 months ago
Common Sense
There is simply nothing wrong with the current secondary rates. In most instances if the right code is used they give the right answer. For those with more than 2 jobs, of which there are very few, there is already adequate provision for them to get a special tax code certificate from IRD.

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7 months ago
Mario Becroft
Why not do away with secondary tax rate, and simply base a person's tax rate on their total earnings from all jobs each month. Obviously not possible with the current PAYE system, but worth considering as part of a larger overhaul of the way individual income taxes are collected.

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6 months ago
Martin Etherington
I have one suggestion regarding secondary rates and that is to align the ESCT rate with the tax rate. i.e. if using the S (or S SL) tax code the ESCT rate should be 17.5% regardless of how much the employee is expected to earn from that employer. The fact that secondary rate is S implies that the employee is earning over $14,000 and less than $48, 000, so the ESCT rate should be at least 17.5%.

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5 months ago
Noel Reid
Our company has shared ideas with IR on how this problem could be eliminated. But it seems decisions already taken around your new system under the Transformation programme will probably eliminate those possibilities.

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5 months ago
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