Bonus And Redundancy PAYE Method
A bonus and a redundancy payment are both lump sum payments, which Inland Revenue calls extra pay. There is no special bonus tax rate. Instead your employer annualises your recent income, adds the lump sum, and taxes the whole amount at the single PAYE rate for that income band.
This guide explains the extra pay method behind the lump sum mini calculator: the steps, the 2026/27 rates, and the differences that change the maths. A bonus carries ACC earners levy and KiwiSaver, while a redundancy payment carries neither.
What counts as a lump sum (extra pay)
Inland Revenue lists extra pay as annual or special bonuses, cashed in annual leave, retiring or redundancy payments, payments for accepting restrictive covenants, exit inducement payments, gratuities or tips, back pay including back paid holiday pay, lump sum holiday pay, and employee share scheme benefits if the employer chooses to deduct tax. Overtime and regular payments are not lump sum payments. If a payment is a one off on top of normal pay, it is usually extra pay.
How Inland Revenue taxes a lump sum
PAYE on a lump sum is not your ordinary flat rate. Inland Revenue works out an annual picture of your income, then finds the band the lump sum lands in. The whole lump sum is taxed at that one rate, so a large payment can look heavily taxed even though the year end assessment squares it up.
The extra pay method in three steps
1. Annualise recent pay. For a normal extra pay, add the income for the 4 weeks ending on the payment date (not the lump sum) and multiply by 13. At the end of employment, add the last 2 pay periods and multiply by the pay frequency factor: weekly 26, fortnightly 13, 4 weekly 6.5, monthly 6.
2. Adjust for a secondary code. If the lump sum is on a secondary tax code, add that code's low threshold amount: SB $0, S $15,601, SH $53,501, ST $78,101, SA $180,001.
3. Add the lump sum and read the band. Add the lump sum to the grossed up annual value, find the row in the rates table, and apply that single rate to the whole lump sum.
Source: Inland Revenue lump sum payments and the calculate PAYE for a lump sum payment pages. Employer wage records and payday filing sit on the PAYE and payslips hub. If the lump sum sits on a secondary code, which letter to use is the secondary tax code guide.
Extra pay PAYE rates for 2026/27
The rate depends on the grossed up annual income plus the lump sum. Most lump sums carry ACC earners levy, so they use the including ACC column. Redundancy payments, retiring allowances, and employee share scheme benefits do not carry the levy, so they use the excluding ACC column. The ACC earners levy for the 2026/27 tax year is only paid on the first $156,641 earned.
| Grossed up annual income plus lump sum | PAYE rate including 1.75% ACC levy | PAYE rate excluding ACC levy |
|---|---|---|
| $15,600 or less | 12.25% | 10.50% |
| $15,601 to $53,500 | 19.25% | 17.50% |
| $53,501 to $78,100 | 31.75% | 30% |
| $78,101 to $156,641 | 34.75% | 33% |
| $156,641 to $180,000 | 33% | 33% |
| More than $180,000 | 39% | 39% |
Source: Inland Revenue calculate PAYE for a lump sum payment (2026/27) and Employer's guide IR335 (June 2026). IR335: the ACC earners levy rate for the year ending 31 March 2027 is 1.75%, and bonuses or gratuities carry it while redundancy and retirement payments do not.
Two worked examples
Same worker, two very different lump sums. Both start by annualising the recent pay of $1,200 a week, which grosses up to $62,400 a year.
Use case: Hamilton warehouse bonus
Situation: Hypothetical worker on $1,200 a week gets a $5,000 performance bonus. A bonus carries ACC earners levy, so use the including ACC column.
Plus the bonus: $62,400 + $5,000 = $67,400 (the $53,501 to $78,100 band).
PAYE on the bonus: $5,000 × 31.75% = $1,587.50. KiwiSaver and student loan come off as well if they apply.
Use case: Christchurch redundancy
Situation: The same worker is made redundant and gets a $30,000 redundancy payment at the end of employment. Redundancy carries no ACC levy, so use the excluding ACC column, and no KiwiSaver comes off.
Plus the redundancy: $62,400 + $30,000 = $92,400 (the $78,101 to $156,641 band).
PAYE on the redundancy: $30,000 × 33% = $9,900. No ACC levy, no KiwiSaver. Student loan still applies on an SL code.
Bonus vs redundancy: what changes
The method is the same. What changes is the levy, the KiwiSaver line, and which rate column you read.
| Treatment | Bonus | Redundancy |
|---|---|---|
| ACC earners levy | Yes, up to $156,641 | No levy |
| Rate column to use | Including ACC | Excluding ACC |
| KiwiSaver deducted | Yes, if a member | No, redundancy is excluded |
| Student loan (SL code) | Yes | Yes |
Source: Inland Revenue lump sum payments (KiwiSaver and student loan on extra pay), Employer's guide IR335 (ACC earners levy list), and redundancy and income tax. Whether you receive redundancy compensation at all depends on your employment agreement: Employment New Zealand says you are only entitled to redundancy compensation if it is stated in that agreement.
What people get stuck on
On r/PersonalFinanceNZ the common worry is that a bonus or redundancy was taxed too much and is gone for good. It is not a penalty rate. The whole lump sum is taxed at the single band the grossed up total lands in, which can over deduct or under deduct against your real year. Inland Revenue: a redundancy payment is taxable income, and after the end of the tax year Inland Revenue works out if you paid the right amount, either automatically or through an IR3, so you may get a refund or have more to pay. If you expect a bill, Inland Revenue lets your employee ask for more tax to be deducted from the lump sum up front.
Estimate it before payday
To sanity check a bonus or redundancy before it hits your account, run the amount through the lump sum mini tool on the PAYE calculator. It uses this extra pay method: annualise, add the lump sum, apply the band rate, and it applies ACC and KiwiSaver only where they belong. Enter your regular pay, add the lump sum, and mark redundancy so the levy and KiwiSaver lines drop off.
Frequently asked questions
How is a bonus taxed in NZ?
A bonus is extra pay. Inland Revenue annualises your recent pay (the 4 weeks ending on the payment date times 13), adds the bonus, and taxes the whole bonus at the single PAYE rate for that income band. A bonus also has ACC earners levy (1.75% up to $156,641) and KiwiSaver if you are a member, plus student loan if you use an SL tax code.
Is redundancy pay taxed in NZ?
Yes. Inland Revenue: a redundancy payment is taxable income. It is taxed as a lump sum using the excluding ACC column of the extra pay table, so there is no ACC earners levy, and no KiwiSaver is deducted from redundancy. Student loan still applies if you use an SL tax code.
Why was my bonus taxed at 30% or 33%?
The rate is set by your grossed up annual income plus the lump sum, not a flat percentage. A higher annual income puts the whole lump sum in a higher band. If too much is deducted, Inland Revenue reconciles it in your income tax assessment after 31 March, and any overpayment is refunded.
Do I pay student loan and KiwiSaver on a bonus?
Student loan: yes if you use an SL tax code. On a main code you pay 12% on the amount over the pay period threshold; on a secondary SL code you pay 12% of the whole lump sum. KiwiSaver: yes on a bonus, but Inland Revenue does not deduct KiwiSaver from a redundancy payment.