Lump Sum & Redundancy Tax Calculator

When you receive a redundancy payment, bonus, holiday pay advance, retirement payment or exit inducement, the IRD does not tax it at your normal pay period rate. Instead, employers use the annualised income method to set the correct PAYE rate, which usually means a higher rate than you see on your regular payslip. This calculator applies the current IRD lump sum PAYE rate table to your own figures and shows what you will actually receive. Select the payment type, enter your annual gross salary and the lump sum amount, then choose your KiwiSaver rate (hidden for redundancy and retirement, which are exempt) and whether a student loan deduction applies. The results show your gross lump sum, PAYE tax deducted, KiwiSaver deducted, student loan deducted, net amount received, and the effective tax rate on the lump sum. A step-by-step breakdown then walks through the IRD method: your annualised income, the total used to select the rate bracket, the PAYE rate applied including or excluding the ACC earners' levy, and the final PAYE calculation. Use it to check a redundancy letter or budget for a bonus payout. Redundancy and retirement payments always use the rate excluding ACC and skip KiwiSaver, while bonuses normally include ACC, so the payment type you choose changes the result. These figures are indicative estimates only, not a substitute for advice from IRD or a tax professional.

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Updated April 2026  Current rates and legislation applied.

How NZ Lump Sum Tax Works

In New Zealand, lump sum payments such as bonuses, redundancy payments, holiday pay advances, and exit inducements are not taxed at your standard pay period rate. Instead, the IRD requires employers to use the annualised income method to determine the correct PAYE rate to apply to the lump sum. This is designed to tax you at the marginal rate you would reach if you earned that amount as regular income across the year.

The IRD Annualised Income Method

The calculation follows these steps as prescribed by IRD:

1. Determine annualised income: For most extra pays, add up your last 4 weeks of pay and multiply by 13 (weekly, fortnightly or 4-weekly pay) or 12 (monthly pay). For employees ending employment, use the last 2 pay periods multiplied by the appropriate frequency factor.
2. Add the lump sum: Add your lump sum amount to the annualised income to get a total figure.
3. Select the PAYE rate: Use the total to determine which rate bracket applies from the lump sum PAYE rate table.
4. Apply the rate: Multiply only the lump sum amount by the selected rate to get your PAYE deduction.

2026/27 Lump Sum PAYE Rate Table (IR335 April 2026)

The following rates apply to lump sum payments for the 2026/27 tax year. The rate including ACC earners' levy applies to most extra pays. The rate excluding ACC levy applies to redundancy and retirement payments, and to any payment where the total (annualised income plus lump sum) exceeds $156,641.

Redundancy and Retirement Payments

Redundancy and retirement payments are treated differently from regular extra pays in two important ways. First, the ACC earners' levy does not apply - so the lower "excluding ACC" rate is always used. Second, KiwiSaver deductions are not made from redundancy payments. This means a redundancy recipient always uses the right-hand column of the rate table above, regardless of their total income level.

Example: An employee earning $75,000 per year receives a $15,000 redundancy payment. Their annualised income ($75,000) plus the lump sum ($15,000) totals $90,000, which falls in the $78,101-$156,641 bracket. Because it is a redundancy payment, the rate excluding ACC applies: 33%. PAYE = $15,000 × 33% = $4,950. Net redundancy received = $10,050.

Bonuses and Extra Pays

For bonuses and other extra pays, the ACC earners' levy is included in the rate unless the total exceeds the ACC maximum earnings threshold of $156,641. This means a bonus paid to someone earning less than $156,641 will use the higher "including ACC" rate column. A bonus that pushes the total above $156,641 switches to the lower rate for the excess portion.

Example: An employee earning $55,000 receives a $10,000 bonus. Total = $65,000, falling in the $53,501-$78,100 bracket. Because it is a bonus and the total is under $156,641, the rate including ACC applies: 31.75%. PAYE on bonus = $10,000 × 31.75% = $3,175. Net bonus received (before KiwiSaver and student loan) = $6,825.

KiwiSaver and Student Loan on Lump Sums

KiwiSaver deductions are made from most lump sum payments at the same rate as the employee's normal pay. The notable exception is redundancy - no KiwiSaver is deducted from redundancy payments. Student loan deductions are also made from lump sums: for employees with a secondary job student loan tax code, 12% is deducted from every dollar of the lump sum; for main job codes, 12% applies to the amount over the annual repayment threshold of $24,128.

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