RWT (Resident Withholding Tax)

The rates and how to pick one

Individuals who have given their bank an IRD number can choose 10.5%, 17.5%, 30%, 33% or 39%. The rates line up with the income tax bands:

| Your income | RWT rate | |---|---| | Up 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% |

Two defaults matter more than the rates themselves.

If you have supplied your IRD number but never chose a rate, the bank deducts at 33%. That is correct for someone earning between $78,101 and $180,000 and too much for most people below that.

If you have not supplied your IRD number at all, the bank must deduct at 45%. That is not a penalty in the legal sense, but it behaves like one.

Interest income also counts toward your total income for the year, which is why the rate should match the bracket your total income lands in, not the size of your savings.

A worked example

An example using round numbers.

Say you have $10,000 in a savings account paying 4%, earning $400 of interest over the year. Rates vary by bank and account; 4% is used here only for the arithmetic.

At the right rate for someone earning $68,000, which is 30%, the tax is $120 and you keep $280.

If you never chose a rate and the bank is deducting the 33% default, the tax is $132.

If the bank does not hold your IRD number, the tax is $180 at 45%, and you keep $220. You have lost $60 of a $400 return to an administrative gap rather than to tax policy.

Scale that up to a $50,000 term deposit and the gap between a correct rate and no IRD number becomes worth a weekend away.

What people commonly get wrong

"The bank picks the right rate for me." It does not. It applies a default. Choosing your rate takes a couple of minutes inside internet banking and applies to future interest payments.

"Choosing a low rate saves me tax." It delays it. RWT is not a final tax for individuals; interest income appears in your end-of-year assessment, so a rate set too low produces a bill later. The honest reason to get the rate right is to avoid a surprise, not to reduce the total.

"It only applies to big savings." It applies to every dollar of interest, including the few dollars a transaction account pays. Small balances are exactly where people forget to supply an IRD number, because it never felt worth the effort.

"RWT and PIE tax are the same." They are not. Interest in a normal bank account is subject to RWT at your chosen rate. A PIE fund or PIE term deposit uses your Prescribed Investor Rate instead, which caps at 28%. Higher earners are sometimes better off in the PIE version for that reason, though the products are not otherwise identical.

Where it meets your weekly budget

RWT is a reminder that the interest figure a bank advertises is not the money that reaches you. If you are saving toward something specific, an emergency fund, a house deposit, next year's insurance, plan on the after-tax amount so the goal date does not quietly slip.

For everything else, the number that decides your week is what remains once rent, power, instalments and savings contributions have been accounted for. That is Safe to Spend.

This is general information, not tax advice.