IETC
The Independent Earner Tax Credit (IETC) provides a tax credit of up to $520 per year ($10 per week) for New Zealand tax residents earning between $24,000 and $70,000 who do not receive Working for Families tax credits, NZ Superannuation or a veteran's pension, or a main government benefit.
The full $520 credit applies for income between $24,000 and $66,000. Above $66,000, the credit reduces by 13 cents for each additional dollar of income, phasing out completely at $70,000. For example, at $68,000 income the IETC would be $520 − 0.13 × ($68,000 − $66,000) = $260.
If your employer knows you're eligible, they can apply the IETC through PAYE by using the 'ME' tax code (instead of 'M'), giving you a slightly higher take-home pay each period rather than waiting for a lump sum refund. Otherwise, IRD will credit the IETC in your end-of-year assessment.
How it works
The 'independent' in Independent Earner Tax Credit specifically excludes anyone who is also receiving Working for Families, NZ Superannuation, a veteran's pension, or a main government benefit — it's designed for people whose only support is their own earnings. If your circumstances change partway through the year, such as your Working for Families entitlement ending when your last child turns 18, you may become newly eligible for IETC for the remaining part of the year.
There are two ways to actually receive the credit: selecting the 'ME' tax code with your employer, which spreads the credit across your regular pay through PAYE, or waiting for IRD to apply it as part of your end-of-year income tax assessment if you didn't use 'ME'. The 'ME' code route is only appropriate while you continue to meet all the eligibility conditions — if you start receiving Working for Families or a benefit partway through the year, you need to update your tax code, since staying on 'ME' after that point would mean claiming a credit you're no longer entitled to.
A common mistake is assuming the IETC is applied automatically to anyone in the eligible income band. It isn't — unless you actively select the 'ME' code or IRD identifies your eligibility through your end-of-year assessment, self-employed people and others outside standard PAYE reporting can easily miss it simply because nothing prompts them to check.
Example: IETC in the phase-out range
Priya earns $66,500 for the year from her main job, with no Working for Families, NZ Super, or benefit income — $500 above the $66,000 threshold where the full credit starts reducing.
Reduction = 13% x $500 = $65.
Her IETC for the year = $520 − $65 = $455, or roughly $8.75 a week if received through PAYE via the 'ME' tax code.
Frequently asked questions
Do I automatically get the IETC through PAYE?
Not unless you specifically select the 'ME' tax code with your employer — if you use the standard 'M' code instead, you won't receive the credit through your regular pay and will need to rely on IRD's end-of-year assessment to pick it up.
What if I only qualify for part of the year, such as after my Working for Families entitlement ends?
You can only receive IETC for the portion of the year when you're not also receiving Working for Families, NZ Super, a veteran's pension, or a main benefit — update your tax code when your circumstances change so PAYE reflects the correct entitlement for each period.
Does self-employment income count towards the IETC income test?
Yes — the $24,000–$70,000 IETC income band is based on your total taxable income for the year from any source, not just PAYE wages, so self-employment and other taxable income all count.
Related Terms
Income Tax
New Zealand income tax is calculated using a progressive bracket system.
Working for Families
Working for Families (WFF) is a government scheme that provides tax credits to families with dependent children aged 18 or under (or 16–18 and not receiving a benefit or student allowance).
PAYE
PAYE (Pay As You Earn) is the system that New Zealand employers use to deduct income tax from employees' wages and salaries.
Tax Code
A tax code is a code you provide to your employer (on an IR330 form) that determines how PAYE is calculated on your pay.
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