If you've ever looked at a payslip and wondered why the number in your bank account is so much smaller than the salary you signed on for, you're not alone. Here's a plain-English walkthrough of how New Zealand's Pay As You Earn (PAYE) system actually works — brackets, levies, KiwiSaver, student loan, the lot — with a worked example you can follow on the back of a napkin.
PAYE — Pay As You Earn — is simply income tax that your employer takes out of your wages before they pay you, and sends straight to Inland Revenue on your behalf. It's not a separate tax; it's the same income tax that a self-employed plumber pays at the end of the year, just collected in small chunks as you earn.
The advantage for most people is that by the time you hit 31 March (the end of the NZ tax year), Inland Revenue has already got roughly the right amount of money, so you don't face a big bill. The disadvantage is that people often lose track of exactly what's being deducted, and why.
New Zealand uses a progressive income tax system, which means different slices of your income are taxed at different rates. Crucially — and this trips almost everyone up — moving into a higher bracket does not mean your whole income is suddenly taxed at the higher rate. Only the dollars above the threshold are taxed at the higher rate.
Here are the rates effective for the 2025/26 tax year:
| Income band (annual) | Tax rate |
|---|---|
| Up to $15,600 | 10.5% |
| $15,601 – $53,500 | 17.5% |
| $53,501 – $78,100 | 30.0% |
| $78,101 – $180,000 | 33.0% |
| Over $180,000 | 39.0% |
So if you earn $80,000, the first $15,600 is taxed at 10.5%, the next chunk up to $53,500 at 17.5%, the next up to $78,100 at 30%, and only the last $1,900 at 33%. Your average rate on $80,000 works out to about 21% — nowhere near the 33% top slice, despite being "in the 33% bracket".
Let's follow the dollars on a $75,000 annual salary, contributing the default 3% to KiwiSaver and no student loan. Income tax alone looks like this:
| Slice | Rate | Tax owed |
|---|---|---|
| First $15,600 | 10.5% | $1,638.00 |
| $15,601 – $53,500 (i.e. $37,900) | 17.5% | $6,632.50 |
| $53,501 – $75,000 (i.e. $21,500) | 30% | $6,450.00 |
| Total PAYE | ~19.6% average | $14,721 |
That's PAYE done. But it's not the end of the story — there are a few more things your employer will deduct before your pay lands in your account.
Everyone earning wages pays the ACC earner levy, which funds cover for non-work injuries. For the year starting 1 April 2025 the rate is 1.67% on earnings up to $152,790. On our $75,000 example, that's $1,253 a year. It's shown on your payslip as a separate line but, like PAYE, your employer sends it straight to Inland Revenue.
If you're enrolled in KiwiSaver, your employee contribution comes out of your gross pay — most commonly 3%, but you can choose 4%, 6%, 8% or 10%. At 3% on $75,000 that's $2,250 a year coming out of your wages. Your employer is also required to contribute at least 3% on top (they don't take this from your pay, but it's taxed separately via ESCT).
If you have a student loan and your annual income is above $24,128, your employer deducts 12% of each dollar above that threshold. Someone earning $75,000 with a loan would pay about $6,105 a year in repayments — on top of PAYE, not instead of it.
Put it all together and on a $75,000 salary with no student loan and 3% KiwiSaver, your take-home pay is roughly $56,777 a year, or $1,092 a week. That's about a 76% take-home ratio — a useful mental benchmark for NZ middle incomes.
This is mathematically impossible under a progressive tax system. Only the dollars above the new threshold are taxed at the higher rate — the dollars below it are still taxed at the same rate as before. You always keep more take-home after a pay rise than before. (What can happen is that your average rate creeps up if you cross a threshold — so the increase feels slightly smaller than the headline figure.)
Close, but not quite. PAYE is the mechanism for collecting income tax from wage and salary earners. If you've got rental income, interest, dividends or self-employment earnings, you'll still owe tax on those — but they're not PAYE. You square up via a tax return or automatic assessment at year-end.
It does. Getting your tax code wrong (typically by ticking the wrong option on your IR330 when you start a job, or by not updating it when you get a second job) is the most common reason Kiwis end up with an under- or over-payment at year-end. The main-job code for most people is M (or M SL if you have a student loan). Secondary income has its own codes — worth five minutes to check.
On a $50,000 salary for the 2025/26 year, PAYE comes to about $7,678. Add the ACC earner levy of $835 and (if you're in KiwiSaver at 3%) $1,500 of employee contributions, and take-home is around $39,987 — roughly $769 a week.
No. Unlike Australia or the UK, New Zealand doesn't have a tax-free threshold. Every dollar you earn is taxed — the first band is just a low 10.5%. This is why low-income earners here don't feel quite as "tax-free" as their Aussie counterparts.
1 April to 31 March. So the "2025/26 tax year" covers 1 April 2025 through 31 March 2026. PAYE rates and thresholds can change at the start of a new tax year — always check what's current before relying on a calculation.
No. GST is a tax on goods and services, not on wages. You pay it when you buy things, not when you earn. PAYE and GST are completely separate systems.
Our PAYE calculator runs the same maths as this guide, on whatever number you throw at it — with bracket-by-bracket transparency so you can see exactly where the money goes.
Open the PAYE calculatorThis guide explains how PAYE is calculated in general for most NZ PAYE earners. It isn't tax advice, and it doesn't cover all edge cases (e.g. extra-pay withholding tables, Working for Families, independent earner tax credit, ACC levy exemptions). For your specific situation, talk to Inland Revenue or a registered tax agent.
