Ever looked at your payslip and wondered how is PAYE calculated NZ? You’re not alone – thousands of New Zealand workers stare at their pay statements each week, confused by the various deductions that seem to shrink their gross income into something much smaller.
This comprehensive guide will demystify every deduction on your payslip, from income tax to ACC levy, helping you understand exactly how your take-home pay NZ is calculated. Whether you’re earning minimum wage or a six-figure salary, knowing these details puts you in control of your finances.
If you want to see these numbers in action, check out our simple but powerful NZ PAYE Calculator – it’s free, accurate, and uses all the latest 2025/26 rates.
What is PAYE?
Understanding how is PAYE calculated NZ starts with knowing that PAYE (Pay As You Earn) is New Zealand’s system for collecting income tax directly from your wages before you receive them
Rather than paying a lump sum at the end of the year, your employer deducts tax from each pay period and sends it straight to the IRD on your behalf.
PAYE isn’t just one tax – it’s actually a bundle of deductions that includes income tax, ACC levy, and potentially student loan repayments. The IRD manages this entire system to make tax collection smoother for both employees and employers.
How PAYE is Calculated NZ: Your Take-Home Pay Breakdown
Many employees ask “how is PAYE calculated NZ” and the answer lies in understanding New Zealand’s progressive tax system.
This means you don’t pay the same rate on all your income – instead, you pay different rates on different portions of your earnings, like climbing a ladder where each rung has a higher rate.
Here’s what typically gets deducted from your gross income:
- Income tax (using progressive brackets)
- ACC Earners’ Levy (1.67% for 2025/26)
- KiwiSaver contributions (if you’re enrolled)
- Student loan repayments (if applicable)
The amount left after these deductions is your take-home pay.
Breakdown of Common Payslip Deductions
Income Tax (PAYE)
Income tax deductions NZ follow a progressive bracket system for the 2025/26 tax year. This means higher earners pay progressively more tax on their additional income.
| Annual Income Range | Tax Rate |
|---|---|
| $0 – $15,600 | 10.5% |
| $15,601 – $53,500 | 17.5% |
| $53,501 – $78,100 | 30% |
| $78,101 – $180,000 | 33% |
| $180,001+ | 39% |
Remember, you only pay the higher rate on income above each threshold. For example, if you earn $60,000, you pay 10.5% on the first $15,600, 17.5% on the next portion up to $53,500, and 30% only on the remaining amount.
ACC Earners’ Levy
The ACC Levy covers you for injuries whether they happen at work, home, or during recreation. For 2025/26, the rate is 1.67% of your earnings, but it’s only charged on income up to $152,790 per year.
This levy is automatically deducted from your pay and provides comprehensive injury coverage that’s unique to New Zealand’s no-fault accident system.
KiwiSaver
KiwiSaver is New Zealand’s voluntary retirement savings scheme where contributions are deducted from your pre-tax income. Most employees contribute between 3% and 10% of their gross pay, with 4% being the current default rate.
Your employer also contributes a minimum of 3% on top of your salary, and the government may add annual tax credits up to $521. You can use our [KiwiSaver Calculator] to see how these contributions grow over time.
Student Loan
If you have a New Zealand student loan repayment, deductions automatically start once your income exceeds $24,128 per year (or $464 per week). The repayment rate is 12% of any income above this threshold.
These repayments are interest-free for New Zealand residents, making it one of the most generous student loan systems globally.
Tax Codes and PAYE Calculation NZ: Why They Matter
Your tax code tells your employer exactly how much tax to deduct from each pay. Getting this wrong can result in paying too much or too little tax throughout the year, leading to complications at tax time.
M vs ME Code
The M code is the standard tax code for your main job, while the ME code includes eligibility for the Independent Earner Tax Credit (IETC NZ).
You can use the ME code if:
- Your annual income is between $24,000 and $70,000
- You’re not receiving Working for Families tax credits
- You’re not claiming other tax credits
The IETC provides up to $520 per year (about $10 per week) as a tax credit, effectively reducing your tax bill. This credit phases out for incomes between $66,000 and $70,000.
Secondary Income
If you have a second job or additional income source, you must use a secondary tax code (like SB, S, SH, ST, or SA). These codes apply flat tax rates based on your total expected annual income from all sources.
Using the wrong secondary code can result in a large tax bill at the end of the year, so it’s crucial to choose the right one based on your combined income.
How to Check Your Own Pay
Understanding these components is the first step to taking control of your finances. Once you know what each deduction means, you can make informed decisions about your KiwiSaver contributions, tax codes, and overall financial planning.
The easiest way to see how these rules apply to your specific salary is to use our free and accurate NZ PAYE Calculator. It uses all the latest 2025/26 rates to give you a detailed breakdown in seconds, whether you have one income source or multiple jobs.
Frequently Asked Questions (FAQ)
What happens if I use the wrong tax code?
Using the wrong tax code means you’ll pay either too much or too little tax during the year. If you pay too little, you’ll owe money to the IRD at tax time. If you pay too much, you’ll get a refund, but you’ve essentially given the government an interest-free loan.
How is the ACC levy calculated?
The ACC levy is calculated as 1.67% of your gross income, but only on earnings up to $152,790 per year. If you earn more than this cap, you won’t pay ACC levy on the excess amount.
Can I stop my KiwiSaver contributions?
Yes, you can take a “contributions holiday” from KiwiSaver for up to one year at a time. However, your employer contributions will also stop during this period, so you’ll miss out on that free money. You can apply for a holiday through your provider or the KiwiSaver Calculator on the IRD website.
What’s the difference between PAYE and income tax?
PAYE is the system used to collect taxes, while income tax is one of the taxes collected through this system. Think of PAYE as the delivery method and income tax as one of the packages being delivered, along with ACC levy and student loan repayments.
Why does my take-home pay change even when my gross pay stays the same?
Your take-home pay can change due to tax code updates, KiwiSaver rate changes, student loan threshold adjustments, or if you cross into a new tax bracket due to overtime or bonuses. Our NZ PAYE Calculator can help you understand these variations.
Ready to see exactly how much you’ll take home? Try our comprehensive [NZ PAYE Calculator] for instant, accurate calculations based on the latest 2025/26 tax rates. For business owners, don’t forget to check out our GST Calculator to stay on top of your tax obligations.