“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.
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?