This calculator uses the new IRD rates post July 31st, 2024 and does include the new PAYE and IETC threshold changes.
Pay As You Earn (PAYE) is a withholding income tax for employees in New Zealand. In most cases, it is deducted from the pay that you will receive before you receive it and is taxed via a series of tiered tax rates depending on the amount you earn and your tax code. The incremental tax rates increase as the salary increases. There are several other factors which contribute to the end amount that you receive in your pay - these include deductions for KiwiSaver, Student Loans and ACC. Further explanation is available below the PAYE calculation tool.
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For PAYE to be taken at the correct rates the taxpayer must complete a tax code declaration form which at the current time is the IR330 form. This declaration is used to clarify the tax code that you will be taxed at. Things that influence the code that you will use are the following:
Without declaring the tax code on the completed IR330 the tax rate charged will be the no notification rate of 45%.
It is the employer's responsibility to work out and deduct the correct PAYE, ACC Levy Fee, Student Loan and KiwiSaver amounts from an employee’s salary or wagers and to send the monies owed to the IRD.
Example One:
Let’s look at an example of an employee who has a gross salary of $100,000.00 NZD per year. This salary was chosen as it is easier to see the relative percentages of the deductions for each facet of the calculation in the workings process.
Adding up (a) + (b) + (c) + (d) = $23,920.00 PAYE tax payable on the $100,000.00 gross salary.
Looking at the PAYE tax owing at the different tiers we can see that on this particular salary the breakdown is as follows:
In this example, the person paid $23,920.00 in PAYE tax on a $100,000.00 gross salary, so the effective tax rate across the whole salary was 23.92%.
Example Two:
Now let’s look at an example of an employee who has a gross salary of $55,000.00 NZD per year.
Adding up (a) + (b) + (c) = $9,520.00 PAYE tax payable on the $55,000.00 gross salary.
Looking at the PAYE tax owing at the different tiers we can see that on this particular salary the breakdown is as follows:
In this example, the person paid $9,520.00 in PAYE tax on a $55,000.00 gross salary, so the effective tax rate across the whole salary was 17.31%.
In addition to income tax, the Pay As You Earn (PAYE) tax system in New Zealand also includes a component for ACC (Accident Compensation Corporation) levies. The ACC is a government-funded scheme that provides comprehensive, no-fault personal injury cover for all New Zealand residents and visitors. The ACC levy component of the PAYE tax calculation is used to fund the scheme.
Employers in New Zealand are required to deduct ACC levies from their employees' wages or salaries, along with income tax and other deductions. The ACC levy rate is calculated based on the employee's earnings and their risk of injury in their particular industry or occupation.
There are two main components to the ACC levy: the Earners' Levy and the Work Levy. The Earners' Levy is paid by all employees, and is calculated as a percentage of their gross earnings. The Work Levy is paid by employers, and is calculated based on their industry and the risks associated with their work.
The Earners' Levy is calculated as a percentage of the employee's gross earnings, up to a maximum earnings threshold.
The Work Levy is calculated based on the industry or occupation of the employer, and is paid by the employer. The Work Levy rates are set by ACC, and vary depending on the level of risk associated with the industry or occupation. For example, industries with higher risks of injury, such as construction or forestry, will have higher Work Levy rates than industries with lower risks, such as office work or retail.
The ACC levy component of the PAYE tax calculation is important in ensuring that all New Zealand residents and visitors are covered by the ACC scheme. Employers are responsible for deducting and paying the ACC levies on behalf of their employees, and the levies are used to fund the scheme and provide support to those who are injured or disabled as a result of an accident.
In New Zealand, the KiwiSaver scheme is a scheme in which a person voluntarily pays a portion of their gross income into a retirement savings fund that can be used either for retirement or a deposit on a first home purchase.
Any person that starts new employment will be automatically enrolled in the KiwiSaver scheme and will have to fill out the opt-out form if they wish to not contribute.
Payment of the KiwiSaver payments is sent to the IRD along with the person's PAYE contributions. This is usually done by the person’s employer.
At this point in time, the options for contribution are 3%, 4%, 6%, 8%, or 10% of their gross pay which can be matched at any level by the employer. Employers are mandated to contribute 3% as a minimum however it is not uncommon to find employers that offer higher rates.
Example One:
Let’s look at an example of an employee who has a gross salary of $100,000.00 NZD per year. This salary was chosen as it is easier to see the relative percentages of the deductions for each facet of the calculation in the workings process.
All gross income is eligible to have the KiwiSaver rate applied to it.
At 3% of gross income KiwiSaver contribution level
$100,000.00 * 03.00% (0.03) = $3,000.00
At 4% of gross income Kiwisaver contribution level
$100,000.00 * 04.00% (0.04) = $4,000.00
At 6% of gross income Kiwisaver contribution level
$100,000.00 * 06.00% (0.06) = $6,000.00
At 8% of gross income KiwiSaver contribution level
$100,000.00 * 08.00% (0.08) = $8,000.00
At 10% of gross income KiwiSaver contribution level
$100,000.00 * 10.00% (0.10) = $10,000.00
Example two:
Now let’s look at an example of an employee who has a gross salary of $55,000.00 NZD per year.
All gross income is eligible to have the KiwiSaver rate applied to it.
At 3% of gross income KiwiSaver contribution level
$55,000.00 * 03.00% (0.03) = $1,650.00
At 4% of gross income Kiwisaver contribution level
$55,000.00 * 04.00% (0.04) = $2,200.00
At 6% of gross income Kiwisaver contribution level
$55,000.00 * 06.00% (0.06) = $3,300.00
At 8% of gross income KiwiSaver contribution level
$55,000.00 * 08.00% (0.08) = $4,400.00
At 10% of gross income Kiwisaver contribution level
$55,000.00 * 10.00% (0.10) = $5,500.00
The biggest benefit of KiwiSaver is that it allows the employee to save over time to take advantage of both fund manager's investment gains as well as compound interest gains over time. Because of this, the employee could see a significant multiplier effect over time due to the interest paid on interest paid.
In New Zealand, a Student Loan is a loan that can be used to cover items such as university and tertiary fees as well as the course-related costs associated with the study and living costs to complete the study.
Fees: these are paid directly to the university or tertiary institution.
Course Related Costs: examples of these include textbooks, computer equipment, stationery, etc.
Living Costs: this usually covers accommodation costs such as rent, amenity fees, and food.
The eligibility criteria to get a Student Loan includes but is not limited to:
The first $22,828 of the person’s income is not subject to Student Loan payment however every dollar after that figure is repaid at 12c in the dollar at a 0% interest rate. This 0% interest rate is offered to the loanee until the loanee has been outside of New Zealand for 6months. After that point, the loanee is assessed on the balance of the loan with required payments being set. Whilst the loanee is outside of New Zealand they can pause repayments however the loan still accrues interest.
For loanees with multiple sources of income, a special deduction rate for secondary and tertiary earnings can apply.
The IETC or Independent Earn Tax Credit is a credit entitlement for people who earn between the current threshold of $24,000.00 and $48,000.00 per year. This PAYE calculator will automatically detect if your salary is in the range to be eligable for the IETC and apply it. It will also inform you of the IETC amount that has been applied.
If your income is within this entitlement window you can expect to receive a credit of up to $520 per year which is lowered as the income gets closer to the upper threshold limit of $48,000.
The IETC is split into two groups.
Let’s look at an example of an employee who has a gross salary of $100,000.00 NZD per year. This salary was chosen as it is easier to see the relative percentages of the deductions for each facet of the calculation in the workings process.
- This salary is greater than the IETC window so is not eligible for any credit.
Example Two:Let’s look at an example of an employee who has a gross salary of $28,000.00 NZD per year
Let’s look at an example of an employee who has a gross salary of $45,000.00 NZD per year
Let’s look at an example of an employee who has a gross salary of $47,500.00 NZD per year
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