This article explains how to apply a Special Tax Code (STC) to an employee. The employee must give you an STC certificate that Inland Revenue has approved, and the certificate must state an end date. You cannot use an STC without that approval.
For deductions using Special Tax Code (STC), an employee will provide you with STC certificate which has been approved and granted by Inland Revenue Department (IRD). The STC certificate will specify the details of the tax deductions you're required to make.
NB. STC cannot be used unless approved by the IRD and certificate provided approving the special tax code of which an end date is specified in the STC certificate.
To apply STC, go to the employee's file, then to the Tax Code Declaration.
In the 'Tax Code' field, enter 'STC', this will open a field where you can enter in additional STC values such as the 'Tax Rate' and 'Special Tax Code End Date' as specified in the STC certificate. Then click on the 'Save button to save STC details.
An example is below in the screenshot.
The STC rate will be applied to the employee in the next pay run. With the example below, the employee's STC tax rate is 0%, therefore the PAYE shown below is $0.00.
Where the employee's STC end date is due to expire; 1 week before expiry date, an Action Item will appear on your business dashboard as per example shown below. This action item is important as you will need to ensure that the employee's tax code is updated accordingly.
If the employee's tax code is not updated accordingly then in the next relevant pay run when the STC has reached expiry date, the tax code of Non-Disclosed (ND) is applied and PAYE will be deducted at the highest marginal tax rate of 46.39% (including ACC earners levy).
When the employee's STC end date has been reached, in the relevant pay run period, the applicable tax code rate is applied. There will also be a pay run warning to advise you of the employee's STC end date.
Important - as mentioned above, if the employee's tax code is not updated accordingly then in the next relevant pay run when the STC has reached expiry date, the tax code of Non-Disclosed (ND) is applied and PAYE will be deducted at the highest marginal tax rate of 46.39% (including ACC earners levy).
Below example shows three employees who had STC and has reached expiry date, same gross earnings and different tax codes scenario applied:
- employee Joe Bloggs, STC had expired however new STC certificate provided at 0% tax rate, therefore PAYE is not being deducted.
- employee Nancy Jones, STC has expired, tax code has not been updated, therefore default of ND tax code applied and PAYE deducted at highest marginal rate.
- employee Nick James, STC had expired, tax code has been updated as 'M', PAYE deducted accordingly based on the employee's primary tax code and annual income.
To update the employee's tax code, click on the pencil icon next to the employee's name in the pay run, this will take you directly to the employee's file, then go to 'Tax Code Declaration'. Enter in the relevant tax code as provided by the employee on the completed Tax Code Declaration form or as per instructions from the IRD. Then click on the 'Save' button.
Once tax code declaration details are saved, you will receive a 'Tax Code Declaration Saved Successfully' confirmation message.