NZ Lump Sum Tax Calculator

How lump sum payments are taxed in New Zealand

A lump sum payment — a bonus, back pay, cashed-in leave, a retiring allowance or a redundancy payment — is treated under IRD tax rules as “extra pay”. There is no special lump sum tax rate. Instead, your employer annualises your normal income, adds the lump sum on top, and taxes the whole lump sum at the PAYE rate for the bracket that total reaches. This calculator applies that method to your bonus or payment and shows what you should keep.

Lump sum PAYE rate table 2026/27

Add your annual salary and the lump sum together, then read off the rate. Bonuses and back pay include the 1.75% ACC earner’s levy; redundancy and retirement payments do not.

*ACC levy stops at $156,641 of total income, so the part of a large lump sum above the cap is taxed at 39% without the extra ACC.

Lump sums on a secondary tax code

If the job paying the lump sum is not your main job, the calculation changes and almost always costs more. IRD does not just annualise what that job pays you — it first adds the low threshold for your secondary tax code, which stands in for the income you earn elsewhere. The thresholds are $15,601 for S, $53,501 for SH, $78,101 for ST and $180,001 for SA; SB adds nothing.

The effect is large. Take IRD’s own worked example: someone on an ST code paid $2,395 in their last two fortnightly pays, receiving a $40,000 lump sum at the end of employment. Annualised, that pay is $31,135. Add the ST low threshold of $78,101 and the lump sum, and the total is $149,236 — which lands in the 33% band, so the PAYE is $13,200 and $26,800 is paid out. Skip the low threshold and the total looks like $71,135, which would suggest 30% and $12,000 of PAYE. That $1,200 gap is the difference between the right answer and a bill later. Set the tax code in the calculator above to match the code your employer holds for this job.

The ACC levy when a lump sum crosses the cap

The ACC earner’s levy is only charged on the first $156,641 you earn in a year. When a lump sum takes you across that line, the levy is charged on the part below it and not on the rest — IRD’s specification puts it as “$156,641 minus the annualised income, multiplied by 1.75%”. If your annualised income is already above $156,641, the lump sum carries no levy at all. On a secondary tax code the same test uses your annualised income plus the low threshold for your code.

IRD’s own example: a $40,000 bonus on an ST code, with $4,695 earned in the last two fortnights. That annualises to $61,035, plus the $78,101 ST low threshold makes $139,136, and the bonus takes the total to $179,136. PAYE is 33% of the whole bonus, or $13,200. Only $17,505 of the bonus sits below the cap, so the levy is $17,505 × 1.75% = $306.33 rather than 1.75% of the full $40,000.

Working out your annualised income

The calculator can annualise your pay for you, using the method IRD specifies. For an ordinary extra pay such as a bonus, total the last four weeks of gross pay excluding extra pays and multiply by 13 (by 12 if you are paid monthly). At the end of employment, total the last two pay periods excluding the lump sum and multiply by 26 if you are paid weekly, 13 fortnightly, 6.5 four-weekly or 6 monthly. If your pay is a steady salary, entering that salary directly gives the same answer; if your hours vary, the gross-up is the figure your employer will actually use.

Bonuses and back pay

A bonus paid on top of your normal wages is taxed at your marginal rate based on your salary plus the bonus, with the ACC levy added. KiwiSaver also comes out of a bonus at your chosen rate, and your employer will deduct student loan repayments of 12% if your tax code ends in SL — the same student loan deductions that come out of your regular pay. Because the whole bonus is taxed at your top rate, the deduction can look high — but if too much is taken, IRD refunds the difference in your end-of-year assessment.

Redundancy and retirement payments

Genuine redundancy and retirement payments are still taxed as extra pay, but two things change: the ACC earner’s levy is not charged, and KiwiSaver is not deducted. That’s why the calculator drops those rows when you choose “Redundancy / retirement”, giving you the lower effective rate shown in the table above.

Why your bonus can feel overtaxed

Under the extra-pay method, the entire lump sum is taxed at the rate for your combined income — your highest bracket — rather than being spread across the lower brackets. That makes the upfront PAYE deduction feel heavy compared with your normal pay. It usually evens out at the end of the tax year, when IRD reconciles your total income and tax.

How to calculate PAYE on a lump sum payment

To calculate PAYE on lump sum income payments, employers calculate the employee’s annualised income — typically the last four weeks of gross pay multiplied by 13, giving annual gross earnings — add the lump sum payment on top, then apply the flat rate for that tax bracket to the whole payment. This calculator runs the same method: it annualises your salary, adds the bonus or redundancy payment, finds the PAYE rate, and shows the PAYE tax, ACC earners’ levy and any student loan repayments deducted from the payment.

The same tool works as a redundancy tax calculator: for a redundancy payment the flat rate excludes ACC, while a bonus includes it. Whether you’re paid weekly, fortnightly or for a one-off pay period, the lump sum is taxed on its grossed-up annualised income, not your single payday — and cashed-in holiday pay or back pay are taxed the same way. Your employer must deduct and pay PAYE on lump sum payments to IRD, reporting them in the employment information (EI) schedule each payday, so the net figure shown here is what should land in your account.

Final pay, back pay and backdated lump sums

The same extra-pay method applies when an employee ends employment: unused leave and any redundancy in the final pay are taxed at the rate for the annualised total. Backdated lump sum payments — such as a back-pay settlement — are treated the same way in the pay period they’re paid. Since 1 April 2025 the thresholds used for extra pay have matched the full-year brackets shown above, and if the deduction ends up too high, IRD squares it up automatically after the 31 March balance date.

Lump sum tax in short

To sum up: a lump sum payment is taxed as extra pay, so the calculator annualises your salary, adds the payment, and applies the PAYE rate for that tax bracket — plus ACC, KiwiSaver and student loan on a bonus, or just the flat rate on a redundancy payment. Enter your figures above to calculate the PAYE on your lump sum payment and see the net payment you keep.

Frequently asked questions