Key facts at a glance
Method
“Extra pay”
Not standard per-period PAYE
ACC Earner's Levy
Exempt
Never applies to redundancy
KiwiSaver
Exempt
Not deducted from the lump sum
Here's the mechanism before the detail: a redundancy or lump-sum payment in New Zealand is not taxed the same way as your regular salary. IRD adds your regular annual salary to the lump sum to find a single marginal rate, then taxes the entire lump sum at that one rate. On a NZ$75,000 salary with a NZ$15,000 redundancy payment, that works out to a 33% rate, NZ$4,950 in PAYE, leaving NZ$10,050 net.
This is IRD's "extra pay" method, and it exists because a one-off lump sum genuinely doesn't fit a normal per-period PAYE calculation, treating it as a normal fortnight's pay would make it look like you earn that amount every pay period all year, wildly overtaxing you. Two other quirks matter as much as the rate itself: redundancy payments carry no ACC Earner's Levy and no KiwiSaver deduction at all, regardless of the amount.
Work out the exact PAYE and net amount on your own redundancy payment.
Open the calculatorHow the "extra pay" method actually works
IRD's calculation runs in four steps. First, your regular income gets annualised, take your last 4 weeks of normal pay (excluding the lump sum) and multiply by 13 for weekly/fortnightly/4-weekly pay, or by 12 for monthly pay. For a stable salaried employee, this lands very close to their normal annual salary. Second, the lump sum is added on top of that annualised figure to get a combined total. Third, that combined total is used to look up the applicable rate from the lump-sum PAYE rate table. Fourth, and this is the part people get wrong, only the lump sum itself is taxed at that rate, not the combined total and not your regular salary.
The rate table redundancy uses excludes the ACC Earner's Levy entirely, since redundancy payments are exempt from it. That table happens to use the same rate boundaries and percentages as ordinary income tax brackets (10.5% / 17.5% / 30% / 33% / 39%), it just applies as a single flat rate to the lump sum rather than progressively band by band the way your regular salary is taxed.
2026/27 lump-sum PAYE rate table (redundancy)
| Annualised income + lump sum | Rate |
|---|---|
| NZ$0 – NZ$15,600 | 10.5% |
| NZ$15,600 – NZ$53,500 | 17.5% |
| NZ$53,500 – NZ$78,100 | 30% |
| NZ$78,100 – NZ$180,000 | 33% |
| Over NZ$180,000 | 39% |
This "excl. ACC" table applies to redundancy payments and retiring allowances specifically. Bonuses and other extra pays generally use a different table that includes the ACC Earner's Levy below the $156,641 cap.
Three worked examples
| Regular salary | Lump sum | Rate | PAYE withheld | Net received |
|---|---|---|---|---|
| NZ$75,000 | NZ$15,000 | 33% | NZ$4,950 | NZ$10,050 |
| NZ$130,000 | NZ$40,000 | 33% | NZ$13,200 | NZ$26,800 |
| NZ$175,000 | NZ$30,000 | 39% | NZ$11,700 | NZ$18,300 |
The third row shows why the combined total matters, a NZ$175,000 salary alone sits in the 33% bracket, but adding a NZ$30,000 lump sum pushes the annualised total to NZ$205,000, into the 39% bracket, so the whole lump sum is taxed at 39%, not 33%. Run your own numbers on the NZ Redundancy Pay Tax Calculator.
The mistake people make: assuming a flat top rate
It's tempting to assume a large redundancy payment simply gets taxed at your highest marginal income tax rate, 39% if you're a high earner, but that's not automatically correct. The rate depends on the combined total of your regular annualised income and the lump sum together, not on your salary alone or the lump sum alone. A modest salary with a modest lump sum can land well below the top rate entirely, while a mid-range salary with a large enough lump sum can be pushed into a bracket higher than the salary alone would suggest. Always calculate the combined total before assuming a rate.
Two deductions that don't apply here
Redundancy payments and retiring allowances are exempt from the ACC Earner's Levy at any income level, and no KiwiSaver contribution is deducted from them either, whether you're on the 3.5% minimum or a higher rate on your regular pay. Both of those only apply to salary and wages, not to a termination lump sum. So the only deduction coming off your redundancy payment is PAYE at the marginal rate determined by the extra pay method above, nothing else.
Calculate your own redundancy net pay
Enter your regular salary and lump-sum amount to see the exact bracket, PAYE withheld, and net amount.
Open the New Zealand Redundancy Pay Tax CalculatorMonthly briefing
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Frequently asked questions
How is redundancy pay taxed in New Zealand?
Using IRD's 'extra pay' method: your regular annual salary is combined with the lump sum to work out a single marginal tax rate, and that rate applies to the whole lump sum. It is deliberately not treated the same as a regular pay period, where only the income within each bracket is taxed at that bracket's rate.
Why isn't redundancy pay taxed like a normal payslip, band by band?
Because a lump sum is, by definition, a one-off event that doesn't fit neatly into a per-period PAYE calculation. If IRD simply added it to a single fortnight's pay and applied normal PAYE tables, it would look like you suddenly earn that amount every pay period for the rest of the year, wildly overtaxing you. The extra pay method instead uses your genuine annual income as the baseline and taxes just the lump sum at the resulting marginal rate.
Does ACC Earner's Levy apply to redundancy payments?
No. Redundancy payments and retiring allowances are specifically excluded from the ACC Earner's Levy, at any income level. This is one of the two things that makes redundancy pay's tax treatment noticeably different from a regular bonus, which usually does carry the levy.
Is KiwiSaver deducted from a redundancy payment?
No. KiwiSaver contributions only apply to regular salary and wages, not to redundancy payments or retiring allowances. Whatever your redundancy payment is, after PAYE, is the full net amount you receive, no further KiwiSaver deduction happens on top.
Can a large redundancy payment push me into a higher tax bracket for the rest of the year?
No, and this is a common misconception. The extra pay calculation only determines the rate applied to that specific lump sum, it does not change the PAYE withheld from your regular ongoing salary (if you're not being made redundant from all employment) or retroactively adjust tax already paid on earlier pay periods. It's a self-contained calculation for that one payment.
Is any part of a redundancy payment tax-free in New Zealand?
Generally no for standard PAYE redundancy payments, the whole amount goes through the extra pay PAYE calculation described here. This differs from some other countries that carve out a tax-free redundancy allowance. Specific ex-gratia settlement terms can vary, so it's worth checking your actual employment agreement or settlement documentation.
What if I'm made redundant partway through the tax year with irregular recent pay?
IRD's method looks at your last 4 weeks of regular pay (excluding the lump sum) and annualises it, weekly/fortnightly/4-weekly pay is multiplied by 13, monthly pay by 12. If your recent pay has been unusually high or low (overtime, a raise, unpaid leave), that can shift which bracket your lump sum lands in compared to using your headline annual salary figure.
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