Income Tax Guide - NZ Tax Calculator

💰 Understanding NZ Income Tax

New Zealand uses a progressive income tax system where higher income is taxed at higher rates. Understanding tax brackets, marginal vs effective rates, and how PAYE works helps you plan financially and minimize tax liability legally.

                Key Point: NZ has five income tax brackets ranging from 10.5% to 39%. You pay different rates on different portions of income (marginal rates). Your average tax rate (effective rate) is always lower than your top marginal rate. PAYE withholds tax from wages, while self-employed pay provisional tax.
            

2024/25 Income Tax Rates

Annual Income	Tax Rate	Tax on Bracket
$0 - $14,000	10.5%	Up to $1,470
$14,001 - $48,000	17.5%	Up to $5,950
$48,001 - $70,000	30%	Up to $6,600
$70,001 - $180,000	33%	Up to $36,300
Over $180,000	39%	No limit

How Progressive Tax Works

Example: $75,000 income

First $14,000 at 10.5% = $1,470

Next $34,000 ($14K-$48K) at 17.5% = $5,950

Next $22,000 ($48K-$70K) at 30% = $6,600

Last $5,000 ($70K-$75K) at 33% = $1,650

Total Tax: $15,670

Effective Rate: $15,670 ÷ $75,000 = 20.9%

Marginal Rate: 33% (top bracket)

Marginal vs Effective Tax Rate

Marginal Rate:

Tax rate on your last dollar earned. Determines tax on additional income like bonuses or raises.

Earning $75,000 → 33% marginal rate

$1,000 bonus → pays $330 tax

Take home: $670

Effective Rate:

Average tax rate across all income. Total tax divided by total income.

Income	Total Tax	Marginal Rate	Effective Rate
$30,000	$4,270	17.5%	14.2%
$60,000	$11,020	30%	18.4%
$100,000	$25,570	33%	25.6%
$200,000	$58,370	39%	29.2%

PAYE (Pay As You Earn)

Employers withhold PAYE tax from wages automatically each pay period.

How PAYE Works:

Employer calculates tax on each payment
Deducts PAYE before paying you
Sends PAYE to IRD monthly or twice-monthly
You receive net (after-tax) pay

PAYE Calculation Example:

Annual salary: $65,000

Fortnightly gross: $2,500

Annual tax: $12,070

Fortnightly PAYE: $464

Fortnightly net: $2,036

Tax Codes

Tax codes tell employers how much PAYE to withhold:

Code	Meaning	Use When
M	Primary income	Main job, includes tax-free threshold
ME	Primary + ESCT	Main job with student loan
SB	Secondary income	Second job, no tax-free threshold
S	Secondary lower	Small second income
ST	Secondary higher	Large second income

⚠️ Wrong Tax Code Consequences

Using M code on second job: Under-withheld tax, owing money at year end
Using SB code on main job: Over-withheld tax, giving IRD interest-free loan
Always use M (or ME with student loan) for highest income source, SB for additional jobs.

Self-Employed Tax

Provisional Tax:

Self-employed pay tax in installments during the year, not at year end.

Residual income tax >$5,000 → pay provisional tax

Three payments: 28 Aug, 15 Jan, 7 May

Based on prior year income + 5%

Example:

2024 profit: $80,000, Tax: $17,020

2025 provisional tax: $17,020 + 5% = $17,871

Three payments: $5,957 each

Reducing Tax Legally

1. Income Splitting (Couples):

One earner $120K (tax $31,970) + partner $0

vs Both earn $60K (tax $11,020 each = $22,040)

Savings: $9,930 through partnerships/trusts

2. Business Expenses (Self-Employed):

Home office deductions
Vehicle running costs
Equipment and supplies
Professional development

3. KiwiSaver Contributions:

Tax-deductible for self-employed up to certain limits.

4. Charitable Donations:

Donate $5,000 → tax credit 33.33%

Reduces tax by $1,667

🔢 Tax Calculations

Example 1: Employee $55,000 Salary

$0-$14,000 at 10.5% = $1,470

$14,001-$48,000 at 17.5% = $5,950

$48,001-$55,000 at 30% = $2,100

Total Tax: $9,520

Take-home: $45,480

Monthly net: $3,790

Example 2: High Earner $220,000

$0-$14,000 at 10.5% = $1,470

$14,001-$48,000 at 17.5% = $5,950

$48,001-$70,000 at 30% = $6,600

$70,001-$180,000 at 33% = $36,300

$180,001-$220,000 at 39% = $15,600

Total Tax: $65,920

Take-home: $154,080

Effective rate: 30.0%

Example 3: Second Job Income

Main job: $45,000, Second job: $15,000

Wrong Way (Both use M code):

Each job withholds as if only income

Main: $6,695 withheld

Second: $1,470 withheld

Total withheld: $8,165

Actual tax on $60K: $11,020

Owe IRD: $2,855 at year end!

Right Way (M + SB):

Main (M code): $6,695

Second (SB code): $4,500 (30% withheld)

Total: $11,195

Small refund of $175

Example 4: Self-Employed Business

Revenue: $120,000

Expenses: $35,000

Taxable profit: $85,000

Tax: $19,570

Less provisional paid: $18,000

Terminal tax: $1,570

Example 5: Bonus Impact

Salary $95,000, Bonus $10,000

Marginal rate: 33%

Tax on bonus: $10,000 × 33% = $3,300

Take-home bonus: $6,700

Total income: $105,000

Total tax: $28,120

🌍 Real-World Tax Scenarios

Career Progression

Year	Income	Tax	Take-home	Effective Rate
2020 (Graduate)	$48,000	$7,420	$40,580	15.5%
2022 (Promoted)	$70,000	$14,020	$55,980	20.0%
2024 (Senior)	$105,000	$28,120	$76,880	26.8%
2026 (Manager)	$150,000	$43,270	$106,730	28.8%

Observation: Each promotion increases effective rate. At $150K, keeping 71.2% of gross income.

Contractor vs Employee

Employee Option:

Salary: $85,000

Tax: $19,570

KiwiSaver (3%): $2,550

Take-home: $62,880

Contractor Option:

Contract rate: $95,000 (gross)

Business expenses: $8,000

Taxable income: $87,000

Tax: $20,230

ACC levy: $1,500

Take-home: $65,270

Extra: $2,390/year

Part-Time Work While Studying

Part-time earnings: $18,000

Tax: $2,070

Student loan repayment (12%): $480

Take-home: $15,450

Monthly: $1,288

Rental Income

Salary $75,000 + Rental $15,000

Rental income: $15,000

Rental expenses: $8,000

Net rental income: $7,000

Total income: $75,000 + $7,000 = $82,000

Tax on salary: $15,670

Tax on rental (33% marginal): $2,310

Total tax: $17,980

🎯 Test Your Knowledge

Quiz on NZ Income Tax

1. NZ's highest income tax rate is:

33%

39%

45%

30%

2. Income $50,000. What's the tax?

$10,500

$8,020

$15,000

$7,420

3. Marginal tax rate means:

Average tax rate on all income

Tax rate on your last dollar earned

Total tax paid

Tax rate on first $14,000

4. M tax code should be used for:

Your main/highest income source

All jobs

Second job

Self-employment

5. Income $90,000, earn $5,000 bonus. Tax on bonus:

$1,500

$1,650 (33% marginal)

$525

$1,950

6. The 39% tax rate applies to income over:

$150,000

$180,000

$200,000

$100,000

7. PAYE stands for:

Pay As You Earn

Pay All Your Earnings

Public Annual Year End

Provisional Annual Year Estimate

8. Provisional tax applies when residual income tax exceeds:

$2,500

$5,000

$10,000

$0 (always)

9. Income $200,000. Effective tax rate approximately:

39%

33%

29%

25%

10. Second job tax code should typically be:

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