Understanding Your Nanny's Tax Code

Get your nanny's tax code wrong and it is usually your nanny who feels it first, not you. Too little tax comes out of each pay and it can build quietly into a bill they were not expecting. Too much comes out and their take-home pay is smaller than it should be for months.

This is the part of nanny payroll that catches new employers off guard. There is no single nanny tax code NZ families can default to. The right code depends entirely on your nanny's own circumstances, and getting the M vs SB tax code question wrong is more common than most realise.

Why your nanny's tax code matters more than it looks

Once you employ a nanny, PAYE needs to be deducted from their wages and reported to Inland Revenue each pay run. The number driving that whole calculation is the tax code your nanny gives you, and it is not a formality to tick off and forget. Get it wrong and the fallout lands on your nanny's payslip, and sometimes on their relationship with you, when they come to you confused about why their pay looks different to what they expected.

Inland Revenue has a tool that helps employees work out the correct tax code, and this is genuinely your nanny's job to work through, not yours.

What does the M tax code mean?

M is the code most nannies will hand you. It generally applies where the nanny role is their main or highest source of salary or wages, such as a nanny working 30 hours a week for your family with no other job paying more.

The key word there is generally. As the employer, your role is to apply the tax code your nanny declares, not to work out which one suits them. That decision sits with your nanny, formalised through an IR330 Tax Code Declaration.

What is the ME tax code?

ME is another main income code, but it fits a narrower set of circumstances. Under the current IR330 rules, it can apply where an employee's expected annual net income sits between $24,000 and $70,000, along with meeting other eligibility conditions such as Working for Families or certain benefits and pensions.

This is not something an employer should try to determine on a nanny's behalf. Your nanny works through Inland Revenue's questions and declares whichever code actually fits.

What does SB mean for a nanny with two jobs?

This is where a lot of confusion sits for anyone comparing M vs SB tax code New Zealand rules. If your nanny has more than one source of income, the second one is generally taxed under a secondary code, and these start with S. SB currently applies where a nanny's estimated annual PAYE income across all jobs is $15,600 or less, taxed at 10.5% before the ACC earners' levy.

SB is not a catch all for "the second job", though. Depending on total expected annual income, the correct secondary code could instead be:

S: $15,601 to $53,500
SH: $53,501 to $78,100
ST: $78,101 to $180,000
SA: $180,001 and above

These bands are based on the nanny's total estimated annual income across every job, not just what they earn with your family.

What if your nanny works for two families?

This comes up constantly as a lot of nannies will work multiple nanny jobs. Picture a nanny working three days for Family A and two days for Family B. Usually only one role counts as the main source of income, with the other treated as secondary, and that does not automatically mean the second family should default to SB. Where this really goes wrong is when a nanny ends up on M with two employers at once. Inland Revenue is explicit that running two main tax codes at once tends to result in an end of year tax bill.

The good news is how we have structured Pay The Nanny for tax purposes. If both jobs are processed and paid via Pay The Nanny, the nanny generally won’t have to worry about secondary tax. If you’re unsure, feel free to get in touch with us to discuss your situation.

Who actually chooses the nanny's tax code?

The short answer: your nanny does, not you. As the employer, you need a completed IR330 Tax Code Declaration from your nanny, and your job is to apply whatever code they have declared. If they never give you one, Inland Revenue requires tax to be deducted at the non declaration rate of 45%, a rough outcome for everyone involved.

Circumstances change too. Your nanny may need a new declaration if they start or leave another job, go through a big income change, or move in or out of ME eligibility. Inland Revenue can also flag an unsuitable code and instruct you to change it. The current IR330 form is available from Inland Revenue.

How Pay The Nanny makes nanny payroll simple

Tax codes are just one piece of getting nanny payroll right. Families also need to manage PAYE calculations, payday filing, KiwiSaver where it applies, and leave balances. That is exactly the load Pay The Nanny is built to take off your plate.

Here is how it works:

Set up your family's account with Pay The Nanny. It takes minutes and gives you one clear place to manage your nanny's employment properly from day one.
Your nanny enters their time worked, at whatever rate applies. No manual timesheets or spreadsheet maths, even where rates vary by day or task.
PAYE and secondary tax are handled automatically, based on the code your nanny has declared. Whether they are on M, ME, SB, S, SH, ST or SA, our system applies it correctly and files with Inland Revenue on your behalf.
For nanny share arrangements, one parent can take the lead. A single lead account can be set up with both families contributing, cutting down on admin for everyone.

Getting a tax code wrong is an easy mistake, but it is your nanny who ends up wearing it. Pay The Nanny takes that risk off the table, so you can focus on being a good employer instead of an accidental payroll expert.

Visit Pay The Nanny to see how our nanny payroll service can take this off your hands.