Tax on a Bonus, Redundancy or Lump Sum Payment in New Zealand

How much tax comes off a bonus or lump sum payment in New Zealand?

Tax on a bonus or lump sum payment is charged at one flat rate on the whole payment, and that rate comes from your annualised earnings plus the payment rather than from the payment on its own. On $80,000 a $10,000 bonus is taxed at 33%, so $3,300.00 of income tax and $175.00 of ACC earners' levy come off and $6,525.00 reaches your account.

Five rates are available to that calculation, from 10.5% to 39%. Which one you get is decided by the pay periods immediately before the payment, which is why the calculator below asks for your regular pay as well as the lump sum.

Tax on your extra pay

What is an extra pay, and which payments count as one?

An extra pay is a lump sum paid on top of your regular pay that covers a longer period than the pay period it lands in, and Inland Revenue runs one rule over all of them. Seven common payments count. Three that look like they should do not.

Overtime is the one people expect to see here. It is paid for the period it was worked in, so it runs through ordinary PAYE at your usual rates, which is what is overtime taxed more works through. Working a public holiday pays at least time and a half and behaves the same way. Public holiday pay sets out the rate and the alternative holiday that comes with it.

How does payroll work out the extra pay rate?

Payroll works out the extra pay rate in three steps, and never from the payment on its own. The rate is decided by what your income would look like if your recent pay continued for a full year, with the extra payment added on top. On the payslip it lands as its own gross line, which how to read a New Zealand payslip sets against the ordinary time above it.

1. Annualise your recent regular pay. For a bonus or back pay, payroll takes the four weeks ending with your last pay period and multiplies by 13. On monthly pay it takes the last month and multiplies by 12.
2. Add the extra pay to that figure. The result is the grossed-up amount, and it is truncated to whole dollars before anything else happens.
3. Charge the rate for that band on the whole extra pay. Not on the part that crosses the threshold. On all of it. Then add the 1.75% ACC earners' levy, unless the payment is exempt.

Termination lump sums annualise differently

From 1 April 2025 a lump sum paid when employment ends uses a shorter look-back than a bonus does. It annualises the last two pay periods rather than the last four weeks.

On steady pay the two rules land on the same annual figure. Two weekly pays multiplied by 26 and four weekly pays multiplied by 13 both come to 52 weeks of the same number. They diverge only when your last few pay periods were unusual, which at the end of a job they very often are: a short final week, a period of notice worked at reduced hours, or a month with no pay at all.

Example 1. A $10,000 bonus on a $80,000 salary

1. 1.Regular pay, annualised$80,000.00
2. 2.Plus the bonus$10,000.00
3. 3.Grossed-up figureTruncated to whole dollars before the rate is chosen.$90,000
4. 4.Income tax on the bonus33% on the whole $10,000, not just the part above a threshold.− $3,300.00
5. 5.ACC earners' levy at 1.75%− $175.00
6. Bonus paid to you$6,525.00

Why was my bonus taxed at 39%?

Your bonus was taxed at 39% because the grossed-up figure landed in the top band, and the whole payment is then charged at that one rate. The band is chosen once. Nothing is split across it, so crossing a threshold by a single dollar moves the entire payment up.

Someone on $175,000 with a $10,000 bonus grosses up to $185,000. Only $5,000 of that sits above the $180,000 threshold, and yet all $10,000 is taxed at 39%. That is $3,900.00 of tax rather than the $3,600.00 a band-by-band calculation would give, a difference of $300.00. The same rule works in your favour in the other direction, because a quiet few weeks before the payment annualises to a lower figure and a lower band.

How much tax will I pay on a $50,000 redundancy payment?

A $50,000 redundancy payment on an $80,000 salary is taxed at 33%, which is $16,500.00 of income tax and $33,500.00 paid to you. No ACC earners' levy is charged on it, and no KiwiSaver deduction comes out of it. Your own figure moves with the two pay periods before you finish, not with your annual salary.

The jump in the last row is the $180,000 threshold being crossed by the grossed-up figure. A payment of $120,000 on this salary grosses up to $200,000, so the whole payment is charged at 39%.

Example 2. A $30,000 redundancy payment on a $80,000 salary

1. 1.Regular pay, annualised$80,000.00
2. 2.Plus the redundancy payment$30,000.00
3. 3.Grossed-up figure$110,000
4. 4.Income tax on the payment33% on the whole payment.− $9,900.00
5. 5.ACC earners' levyRedundancy and retirement payments are exempt from the levy.$0.00
6. Redundancy paid to you$20,100.00

Is redundancy pay taxed in New Zealand?

Redundancy pay is taxed in full. New Zealand has no tax-free redundancy amount, no concessional rate and no cap on the part that is taxed. A redundancy payment is an extra pay, so the rate comes from your annualised earnings plus the payment, and that rate is charged on every dollar of it.

Two things do come off a bonus and not off a redundancy payment. The 1.75% ACC earners' levy is not charged, which is worth $525.00 on a $30,000 payment. A redundancy payment also sits outside salary or wages for KiwiSaver, so no 3.5% employee deduction and no 3.5% employer contribution attach to it.

Which lump sums escape the ACC earners' levy?

Three lump sums escape the ACC earners' levy: a redundancy payment, a retiring allowance and an employee share scheme benefit. Every other extra pay carries it at 1.75%, which is worth $525.00 on a $30,000 payment.

A final pay usually contains both kinds at once. The redundancy component is exempt, the leave payout beside it is not, and they sit on the same payslip taxed at the same income tax rate with different levy treatment. That is not a payroll error. The levy the charged payments carry buys the cover that ACC weekly compensation pays out, which is itself taxed as income when it arrives.

Do KiwiSaver and student loan come out of a bonus?

KiwiSaver and a student loan repayment both come out of a bonus. A bonus is salary or wages, so every deduction that attaches to your regular pay attaches to it as well. On the $10,000 bonus above, at the default 3.5% contribution rate and on an SL tax code, that is $350.00 of KiwiSaver and $1,200.00 of student loan on top of the $3,475.00 of tax and levy, leaving $4,975.00.

• KiwiSaver comes off at your own contribution rate. Your employer also pays 3.5% on top of the bonus, less ESCT. Both are calculated on the gross bonus, before the extra pay tax comes off it.
• The student loan deduction gets no threshold against a bonus. The 12% applies to the whole payment, because the pay-period share of the $24,128 threshold has already been used against your regular pay for that period. The SL suffix is what switches it on.
• A redundancy payment carries the student loan deduction but not KiwiSaver. It sits outside salary or wages for KiwiSaver contribution rates, so neither your contribution nor your employer's attaches to it.

How does a secondary tax code change the extra pay rate?

A secondary tax code raises the extra pay rate, because payroll adds the bottom of the code's band to the annualised figure before it picks a rate. The code already states what your main job pays, and the extra pay calculation reads it the same way the regular pay calculation does. On a second job paying $30,000 a year, the same $10,000 bonus is taxed at 17.5% on code SB and 39% on code SA, a difference of $2,150.00.

Nothing here is a penalty rate. The code is trying to collect the right total across two jobs in one year, and secondary tax in New Zealand sets out how each code is chosen. If the code is wrong for your actual total income, the bonus is over-taxed or under-taxed by exactly the amount the code was wrong by, and the end-of-year square-up corrects it.

Why does the same bonus cost two people different amounts of tax?

The same bonus costs two people different amounts of tax because the rate is read off their recent pay, annualised, not off the bonus. One $10,000 bonus, four colleagues, four rates from 17.5% to 39%.

Four weeks of unpaid leave immediately before a bonus can move you down a band. The annualised figure is built from those four weeks, so a quiet month produces a lower grossed-up total and a lower rate on the whole payment. The last row carries no ACC earners' levy at all, because earnings above $156,641 are past the levy cap for 2026–27.

What are the common bonus and redundancy tax mistakes?

Five mistakes account for most of the surprise. Extra pay withholding is a snapshot: it assumes your recent pay rate continues for the whole year, and that the payment sits on top of it. When either assumption is wrong, the withholding is wrong with it.

• Treating the amount withheld as the final tax. A redundancy payment usually over-withholds, because the calculation annualises the salary you were on and then you stop earning it. Your actual income for the year finishes lower than the grossed-up figure assumed, so the difference comes back at the New Zealand tax refund.
• Assuming a job change in the same year cancels out. A bonus in a year you also changed jobs can go either way. Inland Revenue adds up everything after 31 March and settles the difference. Whether that arrives as an automatic assessment or a return you complete yourself is the question do I need to file a tax return answers.
• Reading the pay date as the date the work was done. A bonus paid on 31 March falls in the year that is ending. Paid on 1 April it falls in the next one, against a different set of annualised earnings. Tax year dates.
• Expecting a tax-free slice of a redundancy payment. There is none. Every dollar is taxed, at a rate between 10.5% and 39%.
• Comparing the bonus rate against your salary rate. Your salary is taxed band by band, so its effective rate is always lower than the top band it reaches. A bonus is taxed at one rate on all of it. The two figures are never going to match.

Which related calculators help with a lump sum payment?

• final pay calculatorEvery line you are owed when a job ends, redundancy included
• holiday pay calculatorThe leave payout beside the redundancy, taxed the same way
• New Zealand PAYE tax ratesThe five bands a grossed-up figure can land in
• take-home pay calculatorYour regular pay, on the same engine

Common questions

Where these figures come from

• IRD. Tax rates for individuals
• IRD. ACC earners' levy rates
• IRD. Employer contributions to KiwiSaver
• IRD. Student loan repayments
• IRD. Payroll calculations and business rules specification

2026–27 tax year (1 April 2026 – 31 March 2027). Last verified 25 August 2026.

Related

• final pay calculatorWhere a redundancy payment sits among the other lines
• Overtime TaxWhy overtime is not an extra pay
• New Zealand PAYE tax ratesThe rates the grossed-up figure lands in
• ACC earners' levyThe deduction redundancy payments are exempt from
• holiday pay calculatorThe other lump sum in a final pay
• New Zealand tax refundWhat happens if the extra pay over-taxed you
• the New Zealand tax yearWhy the pay date of a bonus matters
• take-home pay calculatorYour regular pay, on the same engine