NZ Redundancy Tax Calculator
Calculate the tax on your New Zealand redundancy payment for 2025-26 or 2024-25. See PAYE withholding, student loan deductions, and your net payout.
Quick Answer
There is no tax-free threshold for redundancy in New Zealand. Your redundancy payment is taxed using the lump-sum PAYE method — but it's exempt from ACC levy and KiwiSaver contributions.
Key Facts — 2025-26
Tax-Free Threshold
None
Tax Method
Lump-Sum PAYE
ACC Earner's Levy
Exempt
KiwiSaver
Exempt
Student Loan
Yes — 12%
Rate Applied
One Flat Marginal Rate
How Redundancy Is Taxed in New Zealand
Unlike the UK or Australia, New Zealand provides no special concessionary tax treatment for redundancy payments. Redundancy pay is classified as a lump sum (also called "extra pay") and is taxed using IRD's lump-sum PAYE method. There is no tax-free exemption on any portion of the payment.
The lump-sum PAYE method works by annualising your recent earnings to estimate your full-year income. Your employer takes your gross pay from the last two pay periods, multiplies it by the number of pay periods in a year (divided by two), and arrives at an annualised salary figure. The redundancy lump sum is then added to this annualised figure.
IRD then looks up the marginal tax rate that applies to the combined total (annualised salary plus the redundancy payment). That single marginal rate is applied to the entire redundancy lump sum. This differs from the progressive method, where different portions of income are taxed at different bracket rates.
Because the entire lump sum is taxed at one flat marginal rate, you may be over-withheld compared to what you would owe under progressive brackets. Any overpayment can be recovered when you file your end-of-year tax return or through an IR tax assessment. Conversely, if your annualised income understates your actual earnings (e.g. you received a pay rise mid-year), you may be under-withheld and owe tax at year-end.
NZ PAYE Tax Brackets — 2025-26
The marginal rate applied to your redundancy payment is determined by which bracket your annualised income (salary plus redundancy) falls into.
| Taxable Income | Rate |
|---|---|
| $0 – $15,600 | 10.5% |
| $15,601 – $53,500 | 17.5% |
| $53,501 – $78,100 | 30% |
| $78,101 – $180,000 | 33% |
| $180,001+ | 39% |
What Applies to Redundancy Pay?
| Deduction | Applies? |
|---|---|
| PAYE (lump-sum method) | Yes |
| ACC Earner's Levy | No (exempt) |
| KiwiSaver | No (exempt) |
| Student Loan | Yes (12% above threshold) |
Worked Example
Scenario: You earn $65,000 per year, are paid fortnightly, and receive a $25,000 redundancy payment. You do not have a student loan.
Step 1 — Annualise income: Your fortnightly gross pay is $65,000 ÷ 26 = $2,500. Two fortnightly periods = $5,000. Annualised: $5,000 × (26 ÷ 2) = $65,000.
Step 2 — Add redundancy: $65,000 + $25,000 = $90,000 combined annualised income.
Step 3 — Look up marginal rate: $90,000 falls in the $78,101–$180,000 bracket. The marginal rate is 33%.
Step 4 — Calculate PAYE on redundancy: $25,000 × 33% = $8,250 PAYE.
Net redundancy payment: $25,000 − $8,250 = $16,750. No ACC levy or KiwiSaver is deducted. No student loan deduction applies in this scenario.
Frequently Asked Questions
How is redundancy taxed in NZ?
Redundancy payments in New Zealand are taxed as a lump sum (extra pay) using IRD's lump-sum PAYE method. Your employer annualises your recent earnings to determine a marginal tax rate, then applies that single flat rate to the entire redundancy payment. There is no tax-free threshold for redundancy in NZ.
Is there a tax-free amount for redundancy in New Zealand?
No. Unlike the UK (which has a £30,000 tax-free exemption) or Australia (which has concessional treatment), New Zealand has no tax-free threshold for redundancy payments. The entire lump sum is subject to PAYE.
What is the lump-sum PAYE method?
The lump-sum (extra pay) PAYE method works by annualising your recent regular earnings to estimate your yearly income. Your redundancy payment is then added to that annualised figure, and the marginal tax rate on the combined total is applied to the entire lump sum. This means the redundancy is taxed at a single flat rate rather than being split across progressive brackets.
Do I pay ACC levy on my redundancy payment?
No. Redundancy payments are classified as a non-liable lump sum for ACC purposes. The ACC earner's levy (1.67% for 2025-26) does not apply to redundancy payments.
Do I pay KiwiSaver on my redundancy payment?
No. Redundancy payments are exempt from KiwiSaver employee contributions. Neither employee nor employer KiwiSaver contributions are deducted from redundancy pay.
Does student loan repayment apply to redundancy?
Yes. If you have a student loan, redundancy payments are subject to a 12% repayment deduction on income above the annual threshold ($24,128 for 2025-26). Your employer will deduct student loan repayments from your redundancy payment.
How do I calculate the PAYE rate on my redundancy?
Take your gross pay from your last two pay periods and multiply by the number of pay periods in a year (e.g. 26 for fortnightly) divided by 2, to get annualised income. Add the redundancy amount. Look up the marginal tax rate for the combined total in the NZ tax brackets. That marginal rate is applied to the entire redundancy lump sum.
Can I negotiate a tax-effective redundancy package?
In New Zealand, there is limited scope for tax-effective structuring of redundancy payments since the entire amount is taxable. However, you may negotiate timing (e.g. payment in a different tax year if your income will be lower), or additional non-cash benefits. Contributions to KiwiSaver are exempt from redundancy, so there is no advantage in redirecting payments there. Consult a tax advisor for your specific situation.
Sources
Related Calculators
Last updated March 2026. Reflects 2025-26 tax year rates.