Independent Earner Tax Credit 2026/27 New Zealand

The Independent Earner Tax Credit (IETC) reduces your income tax by up to $520 a year. It applies to employees earning between $24,000 and $70,000 who do not receive Working for Families, NZ Superannuation or a main benefit. Activate it by using tax code ME instead of M with your primary employer.

How the IETC works

The IETC is a non-refundable tax credit: it reduces the income tax you owe, but if your income tax is less than $520 you only receive the credit up to the tax you owe (you cannot receive a refund of more than the tax paid). In practice, at incomes above $24,000, income tax comfortably exceeds $520, so most eligible earners receive the full credit.

Eligibility and phase-out

Annual income IETC available
Below $24,000$0
$24,000 to $66,000$520 (full)
$68,000$260
$70,000 and above$0

Between $66,000 and $70,000 the credit reduces at 13 cents per dollar of additional income, reaching zero at exactly $70,000.

Worked example at $40,000

Without IETC (tax code M): income tax = $5,908.00.
With IETC (tax code ME): income tax = $5,388.00.
Annual saving: $520.

Spread over 26 fortnightly payslips, the $520 credit reduces PAYE by about $20 per fortnight, which you keep through the year rather than waiting for a refund.

Who cannot claim the IETC

You cannot use tax code ME and claim the IETC in any tax year in which you receive:

  • Working for Families tax credits (WFF)
  • New Zealand Superannuation or Veteran's Pension
  • A main benefit (Jobseeker Support, Sole Parent Support, Supported Living Payment, etc.)
  • A student allowance

If you receive any of these, use tax code M. Claiming the IETC alongside a WFF entitlement results in a year-end debt to Inland Revenue.

Using tax code ME with multiple employers

Tax code ME is only valid for your primary income source. If you have a second job, the second employer must use a secondary tax code (SH, SH SL, ST or SB). Applying ME to both jobs would double-count the credit and create a year-end underpayment.

Frequently asked questions

How does tax code ME differ from code M?

Tax code M is the standard primary employment code: Inland Revenue withholds PAYE at the standard rate without applying any credit. Tax code ME tells your employer to apply the IETC offset in each pay run, reducing the PAYE withheld. If your income stays within the IETC eligibility range all year, using ME means you keep the credit through the year rather than waiting for an end-of-year square-up.

Can I claim the IETC if I also receive Working for Families?

No. You cannot claim the IETC if you receive Working for Families tax credits (WFF), New Zealand Superannuation, a main benefit (Jobseeker, Sole Parent Support, etc.), or a student allowance in the same tax year. These entitlements are mutually exclusive. If you receive any of them, use tax code M instead of ME.

What happens if I use tax code ME but earn above $70,000?

At $70,000 the IETC is fully phased out and equals $0. If you used ME but earned above $70,000 your employer will have under-withheld PAYE because the code assumed a credit that does not apply. Inland Revenue will calculate the shortfall at year-end and you will owe the amount. If you expect your income to exceed $70,000 during the year, switch to tax code M.

Source: Inland Revenue IR340 (April 2026), IETC amounts unchanged. Last updated 2026-11-04.