Why your bonus is taxed so much in NZ, and how much you really keep

How the extra pay rate is worked out

Inland Revenue treats annual and special bonuses as lump sums, along with back pay and cashed-in leave. They are not taxed at your usual PAYE rate. Instead, your employer:

1. adds up your gross pay for the four weeks ending on the day the bonus is paid, leaving the bonus out;
2. multiplies that by 13 to make a year, or takes a month's pay times 12 if you are paid monthly;
3. adds the bonus, and finds the row of the table below that the total falls in.

That single rate is taken from all of the bonus. The rate dips above $156,641 because the 1.75% ACC earners' levy is only paid on the first $156,641 earned in 2026/27. If the total crosses that cap, the levy is charged only on the part of the bonus below it. On a $150,000 salary, a $20,000 bonus makes $170,000, so it is taxed at 33%, $6,600, plus the levy on the $6,641 up to the cap, $116.22: $6,716 in all. On a secondary tax code, your code's starting point is added to the total first, so the rate can be higher.

Why it looks over-taxed, and how the year-end square-up fixes it

On a bonus payslip, a third or more of the bonus can be gone, for three reasons. Your regular pay is taxed in slices, with the first dollars at lower rates, so its average rate is lower than the bonus rate. The bonus is taxed at the rate of its top dollar, all the way down. And KiwiSaver and any student loan come off it too, though neither is tax.

The second reason is where tax is really overpaid. Take a $75,000 salary and a $5,000 bonus. The total is $80,000, in the 34.75% row, so $1,737.50 is deducted. But $3,100 of that bonus sits below $78,100, where the rate with the levy is 31.75%, and only $1,900 sits above it. Taxed in slices, the year's tax and levy rise by $984.25 plus $660.25, which is $1,644.50. About $93 too much has been taken.

That comes back. The tax year ends on 31 March, and if your only income is salary, wages or already-taxed interest, Inland Revenue sends an income tax assessment showing a refund, a bill or the right amount paid. The reverse can also happen: if your last four weeks were unusually low, for example because of unpaid leave, the rate can be too low and the assessment may show tax to pay. When a bonus sits wholly inside one band, the extra pay rate is exactly right and nothing changes at year end.

Choosing a different rate, and the old 21% option

Older pages still mention a 21% rate employees could choose for extra pay if they expected to earn under $48,001. That option has gone. The Income Tax Act 2007 now lets an employee who has given their employer a tax code choose a fixed extra pay rate based on the income they expect for the year: the 17.5%, 30%, 33% or 39% band rate. But it cannot be lower than the rate the extra pay method would give, so in practice the choice can only raise the deduction.

That is useful when you have other income that is not taxed at source, or a second job, and would rather pay more now than face a bill. Inland Revenue's guide for employees says the same: if you know a lump sum is coming, check with your employer that enough tax and ACC will be deducted, and ask for more if you might otherwise owe at the end of the year. One trap to avoid: if you have never given your employer a tax code, extra pay is taxed at 45%.

KiwiSaver and student loan come off too: a worked example

Your employer deducts KiwiSaver from a bonus at your usual rate. Redundancy pay is one of the few lump sums it does not come off. Inland Revenue's guide adds that you are entitled to employer contributions on it too. A student loan deduction of 12% applies to the whole bonus when your regular pay is already over the repayment threshold of $24,128 a year ($464 a week). Below it, the 12% applies to the pay period's total over the threshold.

Here is a $5,000 bonus on an $80,000 salary, using 2026/27 PAYE, the ACC levy of 1.75% up to $156,641, KiwiSaver at 3.5% and a student loan at 12% above $24,128:

The total, $85,000, sits in the same band as the salary, so the $1,737.50 of tax and levy is what the year really owes on the bonus, and nothing comes back. The KiwiSaver is still yours, and the student loan deduction still reduces your loan. Our bonus tax calculator works it out for your own pay, KiwiSaver rate and loan, and shows any amount that will come back after 31 March.

Putting a bonus into KiwiSaver

A bonus is taxed before you can do anything with it, so money you put into KiwiSaver from it is after-tax money. What it can earn is the government contribution. The government adds 25 cents for every dollar of your own contributions between 1 July and 30 June, up to $260.72 a year, which takes $1,042.86 of your own money. You must be 16 to 65 with taxable income of $180,000 or less. Your deductions from pay count, the 3.5% off the bonus included, but your employer's do not. If you are short, a voluntary payment to Inland Revenue or your provider counts as long as it is made by 30 June. Calculate.co.nz has a bonus to KiwiSaver calculator to compare the options.

The best time to think about a bonus is before it is paid: when it is set, at a review, or in an offer. Our guide to salary negotiation covers negotiating the whole package. Your Career keeps your bonus target and the measures it is judged on in its Incentives section, shows how it is tracking, and adds each bonus to your pay over time, so at review time you can see what you were promised next to what was paid.

Keep every bonus on the record