A new 12.5% secondary tax code has been introduced to align withholding rates on secondary income with the new personal income tax rates introduced in 2008.

Schedule 2, part A, clause 9 of the Income Tax Act 2007; sections 24B(3)(bb), 24C and 33A of the Tax Administration Act 1994

A new 12.5% secondary tax code has been introduced to align withholding rates on secondary income with the new personal income tax rates introduced in 2008.

Background

Employees who receive secondary employment income (or those receiving income-tested benefits or student allowances who are also in employment) must choose a secondary tax code for their secondary source of employment income, based on the marginal tax rate they expect to be on for that year.

In 2008 the government introduced a new set of personal income tax rates. This new tax scale included a 12.5% rate for income of $14,000 and below. Previously, the lowest rate for withholding tax on secondary employment income was 21%. This means there was the potential for lower-income individuals to have excess tax withheld on their secondary income

Key features

To accurately withhold tax on secondary income, a new 12.5% code has been introduced. New schedule 2, part A clause 9 of the Income Tax Act 2007 and section 24B(3)(bb) of the Tax Administration Act 1994 allow employees to elect an "SB" code for secondary employment earnings if their annual income is not more than $14,000.

Section 24C of the Tax Administration Act 1994 has been amended to ensure that people who receive income-tested benefits can choose the 12.5% tax code for any employment income if that is their correct code, and to clarify that employees who receive an income-tested benefit can choose their correct secondary tax code for their employment income.

Application date

The changes apply from 1 April 2010.