Find out how to calculate PAYE for a lump sum payment made on or after 1 April 2025 when an employee ends employment. These instructions are not for ACC or MSD backdated lump sum payments, or lump sum payments not related to the end of employment.
Backdated lump sum payments from ACC, MSD and Veterans' Affairs
Calculate PAYE for a lump sum payment
You must calculate other lump sum payments together with the lump sum paid when an employee ends employment. You do not do 2 different calculations.
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 amounts paid for the employee’s last 2 pay periods. Do not include the lump sum amount.
Multiply the amount based on the employee’s pay frequency:
| Pay frequency | Multiply by |
|---|---|
| Weekly | 26 |
| Fortnightly | 13 |
| 4-weekly | 6.5 |
| Monthly | 6 |
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 earners’ 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% |
| from $78,101 to $152,790 | 34.67% | 33% |
| from $152,791 to $180,000 | 33% | 33% |
| more than $180,000 | 39% | 39% |
Lump sum payment taxed at lowest rate
What happens next
You may also need to deduct student loans or KiwiSaver from a lump sum payment. See Employer's guide, IR340 - Weekly and fortnightly PAYE deduction tables, and IR341 - Monthly PAYE Deduction tables on this page.