Understanding how much tax you’ll pay in New Zealand can feel overwhelming, especially with progressive tax rates and various deductions to consider. Whether you’re an employee wondering about your PAYE deductions or self employed trying to calculate provisional tax payments, getting accurate estimates is crucial for your financial planning.

New Zealand operates a progressive income tax system where higher earners pay tax at increasingly higher rates on portions of their income. For the 2025-2026 tax year beginning 1 April 2025, the tax rates remain unchanged, but understanding how they apply to your specific situation can help you budget effectively and ensure you’re paying the right amount of tax.

This comprehensive guide will walk you through everything you need to know about New Zealand tax rates, from basic PAYE calculations to complex scenarios involving multiple income sources and business income.

Key Takeaways

• New Zealand uses a progressive tax system with rates from 10.5% to 39% based on income levels
• For 2025-2026, you pay tax at 10.5% on income up to $15,600, then higher rates on additional income
• PAYE tax is automatically deducted from wages and salaries using your tax code
• Secondary tax applies if you have multiple income sources to avoid year-end tax bills
• Self-employed individuals pay provisional tax rather than PAYE throughout the year
• Your total tax depends on your income level, tax code accuracy, and deduction eligibility

2025-2026 Income Tax Rates and Brackets

New Zealand’s personal income tax rates for the current tax year starting 1 April 2025 follow a progressive structure where each portion of your income is taxed at different rates:

The progressive nature means you only pay tax at each rate on the income within that specific bracket. For example, if you earn $60,000 annually, you don’t pay tax at 30% on your entire salary. Instead, you pay:

• 10.5% on the first $15,600 = $1,638
• 17.5% on income from $15,601 to $53,500 = $6,632
• 30% on income from $53,501 to $60,000 = $1,950
• Total annual tax = $10,220

This progressive structure ensures your effective tax rate (total tax divided by total income) is always lower than your marginal tax rate (the highest rate you pay).

How PAYE Tax Works for Employees

The Pay As You Earn (PAYE) system automatically deducted tax from your wages or salary before you receive your pay. Your employer uses tables provided by Inland Revenue along with your declared tax code to calculate the correct deduction amount for each pay period.

PAYE is calculated based on your expected annual income and then spread across your pay periods. This means if you’re paid weekly, your employer calculates your annual tax liability and deducts one-52nd of that amount each week. The same principle applies whether you’re paid fortnightly, monthly, or at other intervals.

Primary Tax Codes for Main Income

Your primary tax code determines how much tax is deducted from your main source of income:

M Tax Code (Standard) The M tax code applies to your main source of income and provides the standard tax-free threshold. Most employees with a single job use this code, which ensures accurate PAYE deductions based on the progressive tax rates.

ME Tax Code (Student Loan) The ME code includes automatic student loan repayments at 12% on income above $23,186 annually. If your annual income exceeds this threshold, your employer will deduct both income tax and student loan repayments from each pay.

MSL Tax Code (Student Loan + Working for Families) The MSL code combines student loan repayments with Working for Families tax credits. This code is used when you’re eligible for families payments and have a student loan requiring repayment.

Using the correct primary tax code ensures accurate weekly or monthly deductions and prevents significant over or underpayments at year-end. You can check and update your tax code through myIR or by contacting Inland Revenue directly.

Secondary Tax for Multiple Income Sources

If you have multiple jobs or income sources, you must use secondary tax codes for all income except your main source. Secondary tax rates are designed to prevent large tax bills when your annual income assessment is processed.

The secondary tax codes correspond to your expected total annual income, not just the income from your secondary job:

• SB Code (17.5%): Use if your total annual income is expected to be between $15,601 and $53,500
• S Code (30%): Use if your total annual income is expected to be between $53,501 and $78,100
• ST Code (39%): Use if your total annual income is expected to exceed $180,000

For example, if your main job pays $45,000 and your part-time weekend job pays $8,000, your total income of $53,000 falls in the SB bracket. Your weekend employer should use the SB secondary tax code, deducting tax at 17.5% from your part-time wages.

Tax Calculation Examples for Different Income Levels

Understanding how much tax you’ll actually pay tax at different income levels helps with budgeting and financial planning. Here are calculated examples showing both the total tax owed and effective tax rate:

Annual Income of $30,000

• Tax on first $15,600 at 10.5% = $1,638
• Tax on remaining $14,400 at 17.5% = $2,520
• Total tax = $4,158 (13.9% effective rate)

Annual Income of $50,000

• Tax on first $15,600 at 10.5% = $1,638
• Tax on $15,601-$50,000 at 17.5% = $6,020
• Total tax = $7,658 (15.3% effective rate)

Annual Income of $70,000

• Tax on first $15,600 at 10.5% = $1,638
• Tax on $15,601-$53,500 at 17.5% = $6,632
• Tax on $53,501-$70,000 at 30% = $4,950
• Total tax = $13,220 (18.9% effective rate)

Annual Income of $100,000

• Tax on first $15,600 at 10.5% = $1,638
• Tax on $15,601-$53,500 at 17.5% = $6,632
• Tax on $53,501-$78,100 at 30% = $7,380
• Tax on $78,101-$100,000 at 33% = $7,227
• Total tax = $22,877 (22.9% effective rate)

These examples demonstrate how the progressive system works in practice, with effective tax rates remaining significantly below the top marginal rates for most income levels.

Self-Employment and Business Income Tax

Self employed individuals don’t have employers deducting PAYE tax, so they must manage their tax obligations through the provisional tax system. This applies to sole traders, partnerships, and anyone earning income from business activities or other sources where tax isn’t automatically deducted.

Provisional Tax Payment Requirements

Provisional tax is required if your residual income tax (total tax minus any credits and deductions) is $5,000 or more annually. Payments are made in three instalments throughout the tax year:

• 28 August: First instalment
• 15 January: Second instalment
• 7 May: Third instalment

You can calculate provisional tax using either the standard method (based on your previous year’s tax assessment) or the estimate method (based on your current year income projection). The estimate method allows more flexibility but requires careful calculation to avoid penalties.

Late payment of provisional tax attracts penalties and interest charges. However, safe harbour provisions protect you from penalties if your payments meet certain criteria relative to your final tax bill, even if you slightly underpay during the year.

Annual Tax Returns and Final Assessment

All self employed individuals must file an annual IR3 tax return to reconcile their actual tax liability. This return allows you to:

• Declare all business income and other sources
• Claim allowable business expenses and deductions
• Calculate your final tax obligation
• Determine any refund owed or additional tax due

The annual tax return process typically occurs between April and July each year, with most returns due by 7 July. If you use a tax agent, the deadline may be extended to 31 March of the following year.

Additional Deductions That Reduce Your Tax

Several deductions and credits can reduce your total tax liability or provide direct financial benefits:

KiwiSaver Government Contributions

While KiwiSaver contributions don’t reduce your taxable income, the government provides co-contributions up to $521.43 annually if you contribute at least $1,042.86 to your KiwiSaver account. This represents a 50% return on your minimum contribution and effectively reduces your overall tax burden. Part of the 2025 Budget, the government will only pay this to individuals that earn under $180,000.

See: KiwiSaver Changes 2025: What You Need to Know About the New Rules

Working for Families Tax Credits

Working for Families provides means-tested tax credits for families with dependent children. These credits can be received as regular fortnightly payments or as annual lump sums, depending on your preference and circumstances. The credits reduce your total tax payable and can result in refunds even if you haven’t paid enough income tax to cover the credit amounts.

Charitable Donations Tax Credits

Donations over $5 to registered charities, schools, or other approved organizations qualify for tax credits of one-third of the donated amount.

Independent Earner Tax Credit

The independent earner tax credit provides up to $520 annually for individuals earning between $24,000 and $70,000 who aren’t receiving Working for Families credits. This credit phases out as income approaches the upper threshold and is designed to provide tax relief for middle-income earners without children.

Other Taxes You May Need to Pay

Beyond personal income tax, several other taxes may apply depending on your circumstances:

GST (Goods and Services Tax)

GST at 15% applies to most goods and services in New Zealand. If you operate a business with annual turnover exceeding $60,000, you must register for GST and charge it on your sales while claiming credits for GST paid on business purchases.

Learn more about GST: GST for New Zealand Businesses: A Comprehensive Guide

Fringe Benefit Tax (FBT)

Employers pay FBT on certain non-cash benefits provided to employees, such as company cars, low-interest loans, or subsidized goods and services. While employees don’t pay FBT directly, it may affect the value of benefits received.

Learn more about FBT here: Mastering Fringe Benefit Tax in NZ: Expert Tips

Withholding Tax

Withholding tax applies to various forms of investment income, including:

• Interest from bank deposits and bonds
• Dividends from New Zealand companies
• Payments to contractors in certain industries
• Some overseas income

The standard withholding tax rate is 33%, though lower rates may apply in specific circumstances or for lower-income earners.

Property-Related Taxes

While New Zealand doesn’t have annual property taxes on owner-occupied homes, the bright-line test may apply if you sell investment property within two years of purchase. Profits from such sales are treated as taxable income and subject to income tax rates.

FAQ

How do I know if I’m paying the right amount of tax?

Check your tax code with your employer and review your annual tax summary from IRD. Most employees receive an automatic assessment between May and July each year showing whether they’ve overpaid or underpaid tax. You can also use IRD’s PAYE calculator or other online tax calculators to estimate your obligations.

What happens if I pay too much tax during the year?

IRD will automatically refund overpaid tax after processing your annual tax assessment, usually between May and July. The refund is typically paid directly to your nominated bank account. If you’re owed a significant refund, you may receive it earlier through the automatic refund process.

Can I reduce my tax by making additional KiwiSaver contributions?

KiwiSaver contributions don’t reduce your taxable income, but you may receive government co-contributions up to $521.43 annually if you contribute at least $1,042.86. This effectively provides a tax benefit without reducing your reported income for other purposes.

Do I need to file a tax return if I’m employed?

Most employees with a single job and straightforward circumstances don’t need to file returns. However, you should file if you have rental properties, significant investment earnings, overseas income, multiple jobs, or want to claim charitable donation credits. Self employed individuals always need to file annual returns.

How is tax calculated on bonuses and overtime?

PAYE on irregular payments like bonuses uses the “extra pay” method, which may result in higher deductions upfront. However, your total annual tax is reconciled at year-end, so any overpayment will be refunded through the automatic assessment process.

When do I need to start paying student loan repayments?

Automatic student loan repayments begin when your annual income exceeds $23,186. Repayments are calculated at 12% on income above this threshold and are automatically deducted if you use the ME or MSL tax codes. You can also make voluntary repayments at any time.

Understanding how much tax you’ll pay in New Zealand requires considering your total income, choosing the correct tax codes, and taking advantage of available deductions and credits. The progressive tax system ensures fairness while the PAYE and provisional tax systems spread payments throughout the year for better cash flow management.

For complex situations involving multiple income sources, business income, or overseas income, consider engaging a qualified tax professional to ensure compliance and optimize your tax position.