PAYE (Pay As You Earn)

How PAYE is calculated

New Zealand taxes income in bands, and the rates that have applied since 1 April 2025 are:

| Income | Rate | |---|---| | $0 to $15,600 | 10.5% | | $15,601 to $53,500 | 17.5% | | $53,501 to $78,100 | 30% | | $78,101 to $180,000 | 33% | | $180,001 and over | 39% |

Only the income inside each band is taxed at that band's rate. Moving into a higher bracket never reduces your take-home pay, though the belief that it does is remarkably persistent.

On top of income tax, employers deduct the ACC earners' levy, which funds cover for injuries that happen outside work. It is currently $1.75 per $100 of income, on earnings up to $156,641 a year.

Your tax code tells your employer which deductions to apply. M is the standard code for your main job, ME adds the independent earner tax credit, and SL is added when you have a student loan. Secondary jobs use SB, S, SH, ST or SA depending on your total income. If you do not hand in an IR330, your employer must deduct at the non-declaration rate of 45%.

A worked example

Someone earning $68,000 a year, paid fortnightly. This is an example, and it ignores KiwiSaver and student loan for now.

Income tax works out at $1,638 on the first $15,600, plus $6,632.50 on the next $37,900, plus $4,350 on the last $14,500. That is $12,620.50 of income tax for the year. The ACC earners' levy adds $1,190, being 1.75% of $68,000.

Total deductions: $13,810.50. Take-home pay: about $54,189 a year, or roughly $2,084 a fortnight against gross fortnightly pay of $2,615.

Add the default 3.5% KiwiSaver contribution and about $91.54 a fortnight comes off again, leaving close to $1,993. Add a student loan and another $202 or so goes, because student loan repayments are 12% of the amount above the pay-period threshold.

So a $68,000 salary can arrive as something under $1,800 a fortnight once everything is deducted. Nothing has gone wrong. That is simply the arithmetic.

What people commonly get wrong

"A pay rise pushed me into a higher bracket and I'm worse off." Not possible under a banded system. Only the dollars above the threshold are taxed at the higher rate.

"My tax code doesn't really matter." It is the single most common cause of PAYE going wrong. A wrong code on a second job, or an ME code claimed when you are not entitled, produces a bill at year end rather than a refund. IRD squares everything up in the annual assessment, so a wrong code delays the problem rather than avoiding it.

"There's a tax-free amount like Australia has." There is not. Every dollar is taxed from the first. What does exist is the independent earner tax credit, worth $10 a week if you earn between $24,000 and $66,000, reducing by 13 cents per dollar above $66,000 and disappearing at $70,000. You cannot claim it while receiving Working for Families, a main benefit, NZ Super or a Veteran's Pension.

"PAYE and ACC are the same thing." They are deducted together but they are different: one is income tax, one is injury cover with its own rate and earnings cap.

Where it meets your weekly budget

PAYE is the reason gross salary is close to useless for budgeting. The number that matters is the one that lands in your account, and then only after the bills leaving that account have been accounted for.

If you budget from take-home pay, the next question is what is left after rent, power, insurance, instalments and savings have taken their share before your next payday. That figure is Safe to Spend, and you can try it on your own numbers with the free calculator at /safe-to-spend#calculator.