PIE Tax Square-Up: When an Overpaid PIR Triggers an IR3 Refund

Until 1 April 2020, the Prescribed Investor Rate (PIR) was a one-way street: if your provider applied too high a PIR to your KiwiSaver or PIE managed fund, the excess tax was lost — IRD treated PIE tax as “final” tax, and there was no mechanism to refund it. If too low, you owed the difference. That changed in the 2020-21 tax year, when the PIE square-up rules were amended to make over-payments refundable through auto-assessment or IR3.

Five years on, many investors still don’t realise they are due a refund. KiwiSaver providers default new members to 28% if not told otherwise. Sharesies, Hatch, and the managed-fund platforms apply whatever PIR you entered on signup — which may have been correct two years ago but isn’t anymore. If your income has dropped (parental leave, redundancy, retirement, sabbatical, business loss) and your provider is still applying 28%, IRD owes you money.

This article walks through how the square-up works in 2025-26, two worked examples (one refund, one tax bill), what changed in 2020-21, and how to set the right PIR going forward.

Why this matters in 2025-26

The square-up applies every year. In late June or July following the end of the income year (31 March), IRD pulls PIE income and tax-paid data from your provider(s), looks up your correct PIR based on your taxable income (excluding PIE) over the prior two years, and computes the variance.

• Over-payment (your correct PIR was lower than what was applied) → the excess is included in your tax assessment as a refund or credit. If you receive an auto-assessment (no other complex income), the refund flows to your bank account automatically. If you file an IR3 (rental income, self-employment, overseas income, etc.), the variance is added to your IR3 result.
• Under-payment (your correct PIR was higher than what was applied) → the shortfall is added to your assessment as additional tax payable.

The mechanic uses your marginal income tax rate, not the PIR ladder, for the variance calculation. This is the important nuance: an over-payment refund is computed as if the PIE income had been taxed at your marginal rate, with the over-paid PIE tax credited.

The PIR ladder (set by §HM 60, frozen since 2010)

Taxable income (excl. PIE) prior year	Combined (taxable + PIE) prior year	PIR
Up to $14,000	Up to $48,000	10.5%
Up to $48,000	Up to $70,000	17.5%
Above either threshold	—	28%

You use the lower of the two prior years to set your PIR. If 2023-24 income placed you at 17.5% and 2024-25 at 28%, you use 17.5% — the rule is favourable to investors.

Note that PIR thresholds are not the same as the PAYE income tax brackets. The PAYE brackets shifted at 1 July 2024 (the $14,000 threshold lifted to $15,600, etc.), but the PIR thresholds remained at the §HM 60 values of $14,000 / $48,000 / $70,000. This deliberate misalignment creates the narrow “21% gap” zone where direct investment can be more tax-efficient than PIE — see Choosing the correct PIR for more.

Worked example 1: over-payment refund

Mei is a software engineer who took 2025-26 off for parental leave. Her taxable income (excl. PIE) for 2025-26 was $18,000 (paid parental leave + small contracting). She remained on a 28% PIR with her KiwiSaver and Sharesies PIE because she never updated it after going on leave.

Over 2025-26 her KiwiSaver attributed $4,200 of PIE income and her Sharesies PIE attributed $1,800 — total $6,000. At 28% PIR her provider remitted $1,680 of PIE tax to IRD.

Square-up calculation:

• Her two prior years had her under $48,000 taxable, so her correct PIR is 17.5%.
• Tax at correct PIR: $6,000 × 17.5% = $1,050.
• Over-payment: $1,680 − $1,050 = $630.

In her July 2026 auto-assessment, IRD credits the $630 against her account. Combined with a small PAYE over-deduction on her PPL payments, she receives a $720 refund to her bank account in early August.

Pre-2020, the $630 would have been “final” and lost. Mei would have had no recourse.

Worked example 2: under-payment tax bill

Hari is a junior accountant who set his PIR to 17.5% when he opened his KiwiSaver and Sharesies accounts during his graduate year (taxable income ~$45,000). In 2025-26 he was promoted twice and his salary jumped to $82,000. He never updated his PIR.

PIE income for 2025-26: KiwiSaver $5,400 + Sharesies $2,100 = $7,500. At his applied 17.5% PIR his provider remitted $1,312.50 of PIE tax.

Square-up calculation:

• His two prior years: 2024-25 he was on $58,000 taxable, 2023-24 he was on $45,000 taxable.
• The lower year (2023-24) places him at the $48,000 boundary — taxable was $45,000 (under $48k) and combined was $45,000 + $1,200 PIE = $46,200 (under $70k). So 17.5% PIR is allowable using the 2023-24 reference year.

Hari got lucky on the look-back rule. His applied 17.5% PIR is the correct PIR, so there is no square-up adjustment.

But going forward — for 2026-27, both prior years (2024-25 at $58k and 2025-26 at $82k) are above $48k. His correct PIR for 2026-27 is 28%. If he leaves it at 17.5%, the 2026-27 square-up will assess additional PIE tax of $7,500 × (28% − 17.5%) = $787.50 payable by 7 February 2028 (the standard terminal tax date).

This is the more common scenario: investors who set a PIR early and don’t revisit it after promotions, second jobs, or rental income coming online.

What changed at 1 April 2020

The Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 amended §HM 36B of the Income Tax Act 2007 to make PIE tax non-final for over-payment situations. Before that change:

• Over-applied PIR → excess PIE tax kept by IRD, no refund mechanism.
• Under-applied PIR → IRD could (and did) assess the shortfall.

After the change (2020-21 income year onwards):

• Over-applied PIR → refund through auto-assessment or IR3 at the taxpayer’s marginal rate.
• Under-applied PIR → shortfall still payable.

The asymmetry remains: the investor can get an over-payment back, but cannot escape an under-payment. This is why setting the PIR correctly still matters even though the consequences of over-applying are now reversible.

Edge cases

First-year residents. A new tax resident defaults to a 28% PIR until two full income years of NZ taxable income are on file. The first square-up after two years can produce a meaningful refund if actual income was lower (e.g. arrived mid-year).

Trusts holding PIE units. Trusts use a fixed 28% PIR with no square-up. This is because trust beneficiaries vary year-to-year and IRD does not square up at the trust level. If a trust’s effective marginal rate is lower than 28% (e.g. distributing to low-income beneficiaries who are taxed in their own right), you cannot reclaim the difference. Many investment trusts hold non-PIE direct investments precisely to avoid this trap.

Transitional cases mid-year. The rules look at when PIE income is attributed — usually at unit-price reset dates throughout the year, but for many funds it is monthly or at exit. If you update your PIR mid-year, attributions before the change use the old PIR and attributions after use the new one. The square-up still reconciles to the correct annual PIR retrospectively, so updating mid-year does not penalise you — it just spreads the variance across the year.

Multiple PIE providers. Each provider remits PIE tax separately based on the PIR you’ve given them. The square-up consolidates across all providers. If you have a 28% PIR on KiwiSaver but a 17.5% PIR on a managed fund, and your correct rate is 17.5%, the KiwiSaver over-payment refunds and the managed-fund attribution stays as-applied.

Exited PIE funds. If you’ve withdrawn from a PIE during the year, the exit attribution still counts towards your annual PIE income and is included in the square-up.

How to find and update your PIR

Each provider holds your PIR separately. To audit yours:

1. KiwiSaver provider — log into your member portal (ASB, AMP, Milford, Generate, Simplicity, Booster, etc.). PIR is usually under “personal details” or “tax”. Update there.
2. Sharesies PIE accounts — Account → Settings → Tax → Prescribed Investor Rate. (Note: PIR only applies to PIE products on Sharesies — direct shares do not.)
3. Hatch PIE products — similar to Sharesies — under tax settings.
4. Direct managed fund providers — most offer an online tax-detail update; some still require a signed form.
5. Bank PIE term deposits — many big-four banks issue PIE-wrapped term deposits to higher-income savers (because of the 28% cap vs 33%/39% marginal). PIR is set when you open the deposit and travels with that deposit until maturity.

After updating, the new PIR applies prospectively to future attributions. Past attributions in the same income year do not retroactively change — but the square-up at year end reconciles everything.

Hub link

If you’re unsure which PIR to apply, the PIR Calculator walks through the two-year income test and tells you which of 10.5% / 17.5% / 28% to set with your providers. The result also flags the narrow $48,001–$53,500 zone where direct investment can beat PIE.

When you do need to file IR3

You’re not required to file IR3 just because of a PIE square-up — IRD’s auto-assessment handles it. You file IR3 if you have other income that requires it:

• Self-employment or contracting income.
• Rental property income (see Rental Loss Ring-Fencing 2025-26 for the related rule).
• Overseas income above the PIR-irrelevant thresholds (FIF, dividend, salary).
• Royalties, beneficiary distributions, partnership income.
• Any income where PAYE didn’t reach the correct amount.

When you do file IR3, the PIE income and PIR variance flows through the assessment. If you over-paid PIE tax AND your IR3 has other components, the consolidated refund (or balance) hits at IR3 finalisation.

A note on KiwiSaver and the 39% top marginal rate

Investors on the 39% PAYE bracket ($180,000+) still gain from the 28% PIR cap on PIE income — that 11-point spread is the core tax advantage of holding investments inside a PIE rather than directly. The square-up does not erode this cap: even after reconciliation, PIE income remains taxed at a maximum of 28%. The square-up only adjusts within the ladder, not above 28%.

Related reading

• PIE fund vs direct investment — when 28% PIR beats holding shares directly.
• Choosing the correct PIR for your PIE investments — the two-year income test and the $48,001 trap.
• PIE fund tax rates — the underlying mechanics of PIE attribution and how providers withhold tax.

Summary

• PIE tax has been non-final for over-payments since the 2020-21 income year (§HM 36B amendment).
• Over-applied PIR → refunded automatically via auto-assessment or through IR3.
• Under-applied PIR → still payable; no concession.
• Use the lower of your two prior income years to set your PIR.
• Update each PIE provider directly through their portal — KiwiSaver, Sharesies, Hatch, managed funds, and bank PIE term deposits each carry an independent PIR.
• Trusts are stuck at a fixed 28% PIR with no square-up.
• The 28% PIR cap (vs the 39% top PAYE bracket) remains the headline reason higher earners hold income-generating investments through PIE rather than directly.

If you’ve been on 28% PIR through a year of low income — parental leave, sabbatical, redundancy, retirement, business loss — there is almost certainly a refund waiting for you in IRD’s next auto-assessment. The fix is to update the PIR with each provider for the year ahead and let the square-up handle the past.