Think having two jobs means you get taxed more heavily? You're not alone, but you might be surprised by the truth.

Secondary tax is one of the most misunderstood parts of the New Zealand tax system. Most people assume that having more than one job means they get stung with a higher tax rate. In reality, that's just not how it works.

Here's a simple way to think about it. A person earning $80,000 from one job pays exactly the same total tax as someone earning $40,000 across two jobs. Your tax is based on what you earn in total, not on how many employers are paying you.

So what does the secondary tax code actually do?

It's really just about making sure the right amount of PAYE is deducted throughout the year.

New Zealand has a progressive tax system, which means income is taxed in layers at increasing rates as you earn more. If you have two jobs and use the standard M tax code for both, each employer deducts PAYE as though that's your only income. The trouble is, when those two incomes are added together, some of it may land in a higher tax bracket and if it’s not treated correctly, you could be faced with a surprise bill at year end.

That's where the secondary tax code comes in. It ensures your second employer deducts the right amount of PAYE upfront, based on your total income.

It's not a penalty for working hard. It's just a way to keep your tax sorted during the year.

 This article is general in nature and should not be relied on as specific advice.