Tax 101

If your first reaction to that headline is ‘confusing and boring’, we hear you. But burying your head in the sand on this topic could cost you, so we’ll keep it simple, promise.

Once you’re earning there’s no avoiding tax. And while it mightn’t be a favourite topic of conversation, it’s really important to have a basic understanding, so you don’t pay any more tax than you have to.

What’s PAYE Tax?

PAYE (pay as you earn) tax is the tax your employer deducts from your salary or wages.

The amount of tax you pay is based on your income level. So generally, the salary or wage you get offered for your job is before tax, meaning once tax comes off, the amount you actually receive will be less. There are loads of online calculators that could help you work out what your take-home pay will be. Most let you factor in student loan or KiwiSaver deductions too.

You’ll need to know your IRD number when you start your first job and start paying income tax. If you don’t know your IRD number, or you need to apply for one, you can sort it via Inland Revenue.

How you pay your PAYE

When you start your first job, your employer will provide you with a tax code declaration form (IR330). This form features a guide to help you work out your tax code, which can differ depending on whether you have a student loan, or more than one source of income. Once you’ve completed the form, give it back to your employer so they can ensure you start paying the correct amount of PAYE from your first pay. 

Resident withholding tax

Resident withholding tax (RWT) is the tax withheld from income you receive from direct savings and investments. If you have a savings account with your bank, then your bank is required to withhold RWT from the interest you've earned and pay it to Inland Revenue on your behalf. The amount of RWT withheld will appear on your bank statement.

The rate at which RWT is deducted from your interest income will depend on the rate that you've chosen. Make sure you've chosen the right rate for you. If you don't choose a rate, but you have given your IRD number, your bank will apply a default rate of 33%. Also, if you don't give your IRD number to your bank, it will apply a non-declaration rate of 45%. Find out more about RWT rates.

PIE tax

KiwiSaver schemes are Portfolio Investment Entities (PIEs). The tax you pay on your PIE income will be at your prescribed investor rate (PIR).

It's important to let your KiwiSaver scheme provider know your PIR, because if you don't, you'll be taxed at the default rate of 28%.

And GST?

Goods and services tax (GST) is a tax on — spoiler alert — the goods and services you buy. GST’s currently charged at 15%. The prices shown in shops and online generally include GST and most receipts detail the GST component. GST is usually automatically deducted and paid to Inland Revenue when you purchase something, so you shouldn’t need to do anything at all. 

Find out more

See, not too full-on wrapping your head around tax. If you’re keen to find out more though, check out these handy guides: 

Important information

This material is information only and you should seek professional advice about your circumstances. We’ve taken care to ensure the information is reliable, we don’t warrant its accuracy, completeness, or suitability for your intended use. To the extent the law allows, we don’t accept any responsibility or liability arising from your use or reliance on this information.

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