Your tax code is a short instruction to your employer about how much PAYE to deduct. It is not a permanent label on you — it can change when you take a second job, start or finish a student loan, or become eligible for the independent earner tax credit. Getting it wrong does not usually mean you permanently overpay; Inland Revenue reconciles at year end. It does mean your weekly cashflow can be tighter or looser than it should be for months.
M — the default for one main job
Most people with a single employer use M. It applies the progressive income tax brackets and the ACC earners' levy. It does not claim the independent earner tax credit, and it does not withhold student loan. If that describes you, M is usually correct.
ME — when the independent earner tax credit applies
ME is M plus the independent earner tax credit (IETC). For 2026-27 the credit is worth up to $520 a year if your income sits between $24,000 and $70,000, you are not receiving Working for Families or a main benefit, and you meet the other IETC rules. Using ME when you qualify reduces PAYE during the year instead of waiting for a square-up. Using ME when you do not qualify can leave you with a bill later.
SL — student loan on top of your base code
An SL suffix (for example M SL or ME SL) tells your employer to withhold 12% of income above $24,128 for student loan. The base code still controls income tax and any IETC. If you have a loan and omit SL, deductions look too low until IRD notices — and catch-up repayments are rarely pleasant.
Secondary codes for a second job
A second (or third) job uses a flat secondary code — SB, S, SH, ST or SA — chosen from your total expected income across all sources, not just that job. Secondary tax is not an extra tax. Your first job has already used the lower brackets, so the second job collects at a flat rate that approximates the right overall result. Pick too low a code and you under-withhold; pick too high and you over-withhold until the end of year.
No notification rate
If you never give an employer a tax code, they must use the no-notification rate of 45%. That is deliberately high. Fixing it is usually as simple as lodging the right code through IRD or your payroll.
How this connects to take-home pay
The take-home calculator models a main job with progressive brackets (and optional student loan and IETC), or a second job with a secondary flat rate. It cannot know every payroll quirk, but it shows why two people on the same gross can keep different amounts once codes, KiwiSaver and loan status differ. If your payslip and the calculator disagree by a large margin, the tax code is the first thing to check.