New Secondary Income Tax Codes (Payroll NZ only)

Description

The following new secondary income tax codes have been added in FastTrack360 to support the introduction of a new top tax rate of 39% for the 2021-22 tax year:

Tax Code

Description

SA

This tax code applies to payees who are earning a secondary income and have combined annual income from their primary and secondary income sources exceeding $180,000 per year.

This tax code effectively results in the payee being taxed at a flat rate of 39%.

SA SL

This tax code applies to payees who are earning a secondary income, have combined annual income from their primary and secondary income sources exceeding $180,000 per year and are subject to a student loan repayment.

As per the SA tax code, this tax code results in an effective income tax rate of 39%. An additional 12% of taxable gross earnings is also deducted towards the student loan repayment.

Because this is a secondary income tax code, the student loan threshold does not apply. That means that 12% of gross earnings are deducted towards the student loan repayment irrespective of whether the student loan threshold has been reached.

If a payee has a Special Deduction Rate (SDR) for their student loan deductions, the student loan component of their tax will be calculated at the applicable SDR rate instead of 12%.

On 23/03/2021 the IRD advised that there was an error in their payroll calculations specifications whereby the ACC earners' levy was not factored into the income tax calculation that was specified. This correction effectively means that the income tax rate for the SA and SA SL tax codes is actually 40.39% (39% plus 1.39% ACC earners' levy) and not 39% as previously indicated.

Since this late notice of the error by the IRD does not give enough time for FastTrack to implement, test and deploy a change in the tax process to support the correction in time for 1 April, it is recommended that if you have payees who are subject to either of these pay codes that you manually adjust the tax amount at the Tax pay batch stage to factor in the additional 1.39% of taxable gross pay that must be calculated towards the ACC earners' levy.

Benefits

This enhancement provides compliance with legislated tax requirements that come into force at the start of the New Zealand 2021-22 tax year.

Configuration

To apply the SA or SA SL tax codes to payees, select the relevant tax code from the Tax Code field on the Payroll New Zealand > Payee > Payee Maintenance > Payee Entry > PAYE Tax Details screen, as shown below.

Because the PAYE Tax Details fall under the validity periods on the Payee record, an existing payee's tax code may be locked if the payee has already been paid previously. Therefore, to change a payee's existing pay code to the new pay codes of SA or SA SL you may need to add a new validity period to the Payee record. For more information, see Payee Validity Periods (NZ).

Note that when calculating tax in a pay batch, FastTrack360 will use the tax code that is valid on the end date of the pay period in which the payment is being made. Therefore, if you have payees who will be subject to the SA or SA SL tax codes from 1 April 2021, it is recommended that you add a new validity period to the relevant Payee records as soon as possible after upgrading to v11.39 so that affected payees are taxed correctly in their first pay period that falls into the 2021-22 tax year.

On 23/03/2021 the IRD advised that there was an error in their payroll calculations specifications whereby the ACC earners' levy was not factored into the income tax calculation that was specified. This correction effectively means that the income tax rate for the SA and SA SL tax codes is actually 40.39% (39% plus 1.39% ACC earners' levy) and not 39% as previously indicated.

Since this late notice of the error by the IRD does not give enough time for FastTrack to implement, test and deploy a change in the tax process to support the correction, it is recommended that if you have payees who are subject to either of these pay codes that you manually adjust the tax amount at the Tax pay batch stage to factor in the additional 1.39% of taxable gross pay that must be calculated towards the ACC earners' levy.