Extra Pay
Extra pay is IRD's category for one-off payments outside your regular salary or wages — bonuses, backpay, retiring or redundancy payments, cashed-up annual leave, and similar lump sums. IRD taxes extra pay differently from your regular pay: instead of running the payment through the normal progressive brackets, the whole extra payment is taxed at a single flat rate.
That rate is found by 'grossing up' your annualised regular income with the extra payment, working out which income tax bracket the combined total falls into, and then applying that one bracket's rate to the ENTIRE extra payment — even if the payment itself straddles a bracket boundary. This can feel like a higher deduction than expected on a bonus, but any over-deduction squares up through your end-of-year income tax assessment.
Because the rate depends on your annualised regular income, the same size bonus can be taxed at different rates for different employees. Extra pay calculations also flow through to ACC earner's levy, KiwiSaver, and student loan deductions on the same payment, each applying their own rules to the extra amount.
Related Terms
Secondary Tax
If you have more than one job or income source, your secondary employer deducts tax using a secondary tax code.
Redundancy Payment
A redundancy payment compensates an employee whose role is genuinely disestablished, typically set out in an employment agreement or negotiated at the time of restructuring.
Tax Code
A tax code is a code you provide to your employer (on an IR330 form) that determines how PAYE is calculated on your pay.
Try the calculator
Use our free tool to see how extra pay affects your tax.