Overtime Tax
Overtime is not taxed at a higher rate in New Zealand. There is no overtime tax. Overtime is salary or wages and runs through the same brackets as the rest of your pay. A heavy week looks over-taxed because PAYE is calculated as though every week of the year looked like that one, and the end-of-year assessment gives back anything that overshot.
The same hourly rate, two different weeks
On $30.00 an hour, a normal 40-hour week against a week with 20 hours of overtime at time and a half. Both weeks use the same tax code and the same PAYE calculation.
| Normal week | Overtime week | |
|---|---|---|
| Gross pay | $1,200.00 | $2,100.00 |
| PAYE deducted | $231.39 | $535.08 |
| Effective PAYE rate | 19.28% | 25.48% |
| What the period assumes you earn a year | $62,400 | $109,200 |
The effective rate rose from 19.28% to 25.48%, and that is the number people notice. Nothing in the calculation knows the extra money was overtime. A one-off $2,100 week of ordinary salary produces exactly the same figures.
What the overtime itself actually cost in tax
- 1.20 hours at time and a half$900.00
- 2.Extra PAYE on that moneyAn effective 33.74% on the overtime portion− $303.69
- Kept from the overtime$596.31
Why the period calculation does this
Income tax is annual, but PAYE is deducted every payday. To bridge that, Inland Revenue's calculation annualises the period: it multiplies the pay for this period by the number of periods in a year, works out the annual tax on that figure, then divides back down.
That is exactly right for someone whose pay never changes. For anyone with a variable week it overshoots on the big weeks and undershoots on the small ones, because a $2,100 week is treated as evidence of a $109,200 year.
The system is designed to settle this at the end of the tax year rather than each payday. If your quiet weeks and busy weeks average out to less than the busy weeks implied, you have overpaid and it comes back.
The end of the year is where it evens out
After 31 March, Inland Revenue assesses your tax on the income you actually earned across the whole year, not on 52 copies of your busiest week. If the period calculations took too much, the difference is refunded. If your overtime genuinely lifted your annual income into a higher bracket, no refund is due, because that tax was correctly charged. Both outcomes are the system working. See tax refunds and the New Zealand tax year.
The genuine exception: an extra pay is different
There is a category that really is taxed on its own rule, and confusing it with overtime is where most of this question comes from. A bonus, commission, back pay, a redundancy payment or a cashed-up holiday is an extra pay. It is taxed at the marginal rate that applies once it is stacked on top of your annualised income.
The same $5,000 bonus therefore carries three different rates depending on what the person already earns:
| Annualised income | Extra pay rate | Tax on the bonus | You keep |
|---|---|---|---|
| $45,000 | 17.5% | $962.50 | $4,037.50 |
| $80,000 | 33% | $1,737.50 | $3,262.50 |
| $190,000 | 39% | $1,950.00 | $3,050.00 |
The rate column is income tax. The tax column includes the ACC earners' levy, which applies to a bonus but not to a redundancy payment. Bonus and redundancy tax covers that split in full.
Overtime in the normal cycle is not an extra pay
This is the line that decides which rule applies to you. Overtime paid in your ordinary pay run, alongside your ordinary hours, is salary or wages and goes through the PAYE tables with everything else. It only becomes an extra pay if it is paid as a separate lump sum outside the normal cycle, such as a back payment covering several months at once. If your overtime appears on your normal payslip with your normal hours, the tables applied, and the effective rate you are looking at is the period effect described above.
Two deductions that are not tax but look like it
- KiwiSaver is a percentage of gross pay, so a bigger week means a bigger contribution. That money is yours, in your account, and is not tax.
- Student loan repayments are charged on the amount above the pay period threshold, so a bigger week goes further past it. That money reduces your loan balance and is not tax either. See the repayment threshold.
Both grow with a heavy week, both appear beside PAYE on the payslip, and neither is a tax on overtime. The take-home pay calculator separates all four deductions so you can see which one moved.
Next
- Bonus and redundancy taxThe rule that really is different
- NZ tax bracketsWhat a marginal rate means
- Tax refundGetting an over-taxed week back
- Why Your Pay ChangedEvery other cause of a surprising payslip
- take-home pay calculatorCheck the week against the arithmetic
Common questions
Is overtime taxed more than normal pay in NZ?
No. There is no separate overtime tax rate in New Zealand. Overtime is salary or wages and runs through the same brackets as everything else. What changes is how much of your income sits in a higher bracket, which is what a pay rise does too.
Why did my big overtime week get taxed so heavily?
Because PAYE is worked out per pay period and assumes every period looks like this one. A $2,100 week annualises to $109,200, which pushes part of it into a higher bracket. Your effective rate moves from 19.28% to 25.48%. A one-off $2,100 week of ordinary salary is taxed identically.
Do I get the extra tax back?
Yes, if you overpaid. At the end of the year Inland Revenue assesses your actual annual income rather than 52 copies of your busiest week, and any excess comes back as a refund. If the overtime genuinely lifted your annual income into a higher bracket, that tax was correctly due.
Is a bonus taxed differently from overtime?
Yes, and this is the real distinction. Overtime in your normal cycle is ordinary wages. A bonus, back pay or redundancy is an extra pay, taxed at the marginal rate reached once it sits on top of your annualised income. The same $5,000 bonus is taxed at 17.5% on one income and 39% on another.
Should I turn down overtime because of tax?
The arithmetic never supports it. Brackets are marginal, so a higher rate applies only to the dollars above the threshold and never to your whole income. The top rate is 39%, so the worst case is keeping 61 cents of the last dollar.
Does overtime affect my student loan or KiwiSaver deductions?
Yes, both, and that adds to the impression. KiwiSaver is a percentage of gross, so a bigger week means a bigger contribution. Your student loan repayment is charged on the amount above the period threshold. Neither is tax, but both widen the gap between gross and net.
Where these figures come from
2026–27 tax year (1 April 2026 – 31 March 2027). Last verified 30 July 2026.
Related
- Bonus and redundancy taxHow an extra pay is taxed
- NZ tax bracketsWhy a higher rate only hits the dollars above it
- Why Your Pay ChangedThe other causes of a surprising payslip
- Tax refundWhere an over-taxed week is settled
- Public Holiday PayThe other reason a week is bigger than usual