What is PAYE Tax?

What is PAYE?

PAYE stands for Pay As You Earn. It’s used to collect income tax and an ACC levy from an employee’s salary or wages. The PAYE system ensures that income tax is deducted from a worker’s paycheck by their employer before they receive it.

Essentially, PAYE ensures that workers pay their income tax spread throughout the year, rather than receiving a huge tax bill at the end of the financial year.

What is the money used for?

The money deducted goes towards many projects and services, including:

• Health
• Education
• Social security and welfare
• Law and order
• Defence
• Housing and community development

PAYE is the reason we have free (and subsidised) public healthcare and education, and receive benefits if we’re unemployed, or unable to work due to illness.

How much do I have to pay?

The amount of PAYE tax you pay is based on your earnings and tax code. PAYE tax rates start at 10.5% and top out at 39%.

However, as a rule of thumb, the less income you receive, the less tax you pay.

Does PAYE pay off my student loan?

Because PAYE goes towards government dictated projects and services, it’s not used to pay off student loan debt. However, if you have a student loan and are living and working in New Zealand, you will need to make loan repayments.

The amount you have to pay to your student loan each year is 12% of every dollar you earn over the repayment threshold. For the 2024 tax year, the annual repayment threshold is $22,828. Whether you need to pay amounts each pay, or in lump sums, depends on how you get your income.

People who have outstanding student debt have a specific tax code, signified by an ‘SL’. Therefore, it is important to ensure you have the correct tax code, to help you pay off your debt.

What if I’m self-employed?

If you’re self-employed or a contractor, you are responsible for your own tax obligations. You can either file your own tax return, pay a tax agent to prepare your paperwork, or use an online line accounting service such as Xero or Hnry.

Not sure what form you need to complete? See a breakdown of paying self-employment tax here.

About the author of this page

This report was written by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.