Find out how to calculate PAYE for a lump sum payment. These instructions are not for ACC, MSD or Veterans' Affairs backdated lump sum payments, or lump sum payments when an employee ends employment.
Backdated lump sum payments from ACC, MSD and Veterans' Affairs
Before you start
The following special rules apply for employees with CAE, EDW, NSW, ND, or tailored tax codes.
CAE or EDW tax codes
Do not use the employee's ordinary flat rate. Use the method below for lump sum payments from primary employment.
NSW, ND, or tailored tax codes
Use the rate you usually would for this employee to calculate the PAYE due on the lump sum payment. Do not use the method described below.
Calculate the grossed-up annual value of the employee's income
Add up the employee’s income payments for the 4 weeks ending on the date of the extra payment excluding the amount of any extra payment(s).
If the employee is paid more than once a month
Multiply this number by 13 to calculate the grossed-up annual value of their income.
If the employee is paid once a month
Multiply this number by 12 to calculate the grossed-up annual value of their income.
Add the secondary threshold amount for secondary tax code users only
If the employee does not use a secondary tax code
Ignore this step.
If the employee uses a secondary tax code
Add the low threshold amount for their secondary tax code to the grossed-up annual value of their income.
| Secondary tax code | Low threshold amount |
|---|---|
| SB | $0 |
| S | $15,601 |
| SH | $53,501 |
| ST | $78,101 |
| SA | $180,001 |
Calculate the PAYE rate
Add the lump sum payment to the grossed-up annual value of the employee’s income (including their secondary tax code’s low threshold amount, if appropriate). Find the correct row on the table below. The PAYE rate for the lump sum payment is listed beside it.
Most lump sum payments have ACC earner’s levy. Redundancy payments, retiring allowances and employee share scheme (ESS) benefits do not, regardless of the income source. The ACC earners' levy for 2025-26 tax year is only paid on the first $152,790 earned.
| Income range | PAYE rate including 1.67% ACC earners' levy | PAYE rate excluding ACC earners' levy |
|---|---|---|
| $15,600 or less | 12.17% | 10.50% |
| from $15,601 to $53,500 | 19.17% | 17.50% |
| from $53,501 to $78,100 | 31.67% | 30.00% |
| from $78,101 to $152,790 | 34.67% | 33.00% |
| from $152,791 to $180,000 | 33.00% | 33.00% |
| more than $180,000 | 39.00% | 39.00% |
Lump sum payment taxed at lowest rate
If you are applying the lowest PAYE rate to the lump sum payment, tick this box on the employment information return.
What happens next
You may also need to deduct student loans or KiwiSaver from a lump sum payment.