See the correct PAYE withheld on your redundancy or lump-sum payment using IRD's "extra pay" method, not a naive top-marginal-rate guess. On an $80,000 regular salary with a $20,000 redundancy lump sum, IRD withholds about $6,600 in PAYE, leaving you $13,400 net, with no ACC levy or KiwiSaver deducted from the lump sum at all.
Method
Extra pay
IRD lump-sum rules
ACC levy on lump sum
None
exempt by law
KiwiSaver on lump sum
None
exempt by law
Tax-free portion
$0
generally none in NZ
Your normal full-year salary (IRD annualises your last 4 weeks of regular pay to get this figure).
Net redundancy payment received
$13,400
PAYE withheld
$6,600
Marginal rate applied
33%
Effective rate on lump sum
33.0%
Why this rate, not your normal marginal rate
IRD adds your $90,000 regular annual salary to your $20,000 redundancy payment to get an annualised total of $110,000. That total lands in the 33% bracket, so the entire lump sum (not your regular salary) is taxed at 33%. Redundancy payments are exempt from the ACC Earner's Levy and KiwiSaver, so no other deductions apply to the lump sum itself.
2026/27 lump-sum PAYE rate table (redundancy, excl. ACC levy)
| Annualised income + lump sum | Rate |
|---|---|
| $0 – $15,600 | 10.5% |
| $15,600 – $53,500 | 17.5% |
| $53,500 – $78,100 | 30% |
| $78,100 – $180,000 | 33% |
| Over $180,000 | 39% |
| Redundancy / lump-sum amount | $20,000 |
| PAYE withheld (33%) | -$6,600 |
| Net amount received | $13,400 |
Calculations use IRD's 2026/27 "extra pay" lump-sum PAYE method: your regular annual salary is treated as already-annualised income, added to the lump sum to find the marginal bracket, and only the lump sum is taxed at that rate. Redundancy payments and retiring allowances are exempt from the ACC Earner's Levy and KiwiSaver. Does not model bonuses/gratuities (which carry ACC levy unless the total exceeds $156,641) or tax-free redundancy components under other schemes. For precise advice consult IRD or a tax professional.
IRD doesn't just tack a redundancy payment onto your last payslip and tax it at whatever rate that pay period happens to land on. Instead it annualises your regular salary, adds the lump sum on top of that annualised figure, and finds a single marginal rate from the combined total. That one rate then applies to the entire lump sum, not to your regular pay, which stays taxed exactly as it always was.
This is why a large redundancy payment can look like it's taxed harder than your normal pay: if your regular salary already sits close to a bracket boundary, adding the lump sum on top pushes the combined figure into a higher bracket, and that higher rate applies to the whole payment, not just the amount technically over the line. It's a genuine consequence of how the "extra pay" method works, not an error or a penalty.
Redundancy payments and retiring allowances get two specific carve-outs that regular pay doesn't: no ACC Earner's Levy and no KiwiSaver deduction, regardless of how much you earn. That's different from a bonus, which does carry the ACC levy below the earnings cap, so don't assume every lump-sum payment from an employer gets the same tax treatment.
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New Zealand uses IRD's 'extra pay' method. Your regular annual salary is combined with the redundancy lump sum to find a single marginal tax rate, and that rate is applied only to the lump sum, not to your regular pay. It is not simply added to your last payslip and taxed as regular income.
No. Redundancy payments and retiring allowances are specifically exempt from the ACC Earner's Levy, regardless of your income level. This is different from bonuses, which do carry the ACC levy unless your annualised total exceeds $156,641.
No. KiwiSaver contributions are not deducted from redundancy payments or retiring allowances, only from regular salary and wages. The full lump sum, minus PAYE, is what you receive.
Because IRD annualises your regular salary and adds the lump sum on top before choosing a rate. If your regular salary already sits near the top of a tax bracket, adding a large lump sum on top can push the combined total into a higher bracket, and that higher rate applies to the whole lump sum, not just the portion technically 'in' that bracket.
Redundancy payments, retiring allowances, unused annual leave paid out on termination, and other one-off termination payments generally fall under the 'extra pay' PAYE method. Regular bonuses and commission payments use a related but slightly different treatment (they do carry the ACC levy below the cap).
Generally no. Unlike some other countries, New Zealand does not have a general tax-free redundancy allowance for PAYE employees, the whole payment is subject to PAYE under the extra pay method described here. Some specific ex-gratia arrangements can differ, so check your individual settlement or employment agreement.
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