How Is Redundancy Pay Taxed in NZ? Full 2026/27 Guide
Redundancy Pay Tax NZ
Redundancy pay is taxed as an “extra pay” using a special flat tax rate based on your annualised income — not your normal weekly PAYE rate. Two important exceptions apply only to redundancy (not most other lump sums): the ACC earner’s levy is not deducted, and KiwiSaver contributions are not deducted from a redundancy payment, though student loan repayments still are, if you earn above the threshold.
See your regular take-home pay for comparison with our free PAYE Calculator.
Financial-content disclaimer (keep visible near the top): This guide provides general information only, not tax or employment law advice. Confirm your specific situation with Inland Revenue, your employer, or an employment lawyer if you’re currently facing redundancy.
There’s No Legal Right to Redundancy Pay in NZ — An Important Starting Point
Unlike some countries, New Zealand has no statutory redundancy entitlement. Whether you receive a redundancy payment at all — and how much — depends entirely on what’s stated in your employment agreement, or what’s negotiated as part of a settlement. This guide covers how any redundancy payment you do receive is taxed, not whether you’re entitled to one in the first place — that’s a separate employment law question worth confirming with your employment agreement or an employment lawyer if you’re currently facing a restructure.
The “Extra Pay” Tax Method — Why Redundancy Isn’t Taxed Like Your Normal Pay
Redundancy pay is classified by IRD as an “extra pay” — a lump sum on top of your regular income — alongside bonuses, retiring allowances, and cashed-up annual leave. Rather than applying your normal progressive PAYE tax code to it, employers must use a flat tax rate calculated from your annualised income, following a specific method:
- Annualise your recent income: add up your last 4 weeks of gross pay (or last 2 pay periods, if this payment coincides with your termination) and multiply by 13 (for weekly, fortnightly, or 4-weekly pay) or 12 (for monthly pay).
- Add the lump sum to that annualised figure.
- Find the matching flat rate from IRD’s lump sum payment table, based on the combined total.
- Apply that single flat rate to the entire redundancy payment — not a graduated calculation across brackets, but one flat percentage on the whole amount.
Why IRD does it this way: the goal is to tax your redundancy payment at roughly the same marginal rate you’d have paid if that money had simply been part of your normal annual income — avoiding a situation where a lump sum accidentally gets taxed too lightly (or too heavily) purely due to payment timing.
The Two Things That Make Redundancy Different From Other Lump Sums
This is the most commonly misunderstood part of redundancy tax, and it’s genuinely different from how bonuses or cashed-up leave are treated:
| Deduction | Applies to redundancy pay? | Applies to bonuses/other lump sums? |
|---|---|---|
| PAYE income tax (flat “extra pay” rate) | Yes | Yes |
| ACC earner’s levy | No — redundancy uses the rate table that excludes ACC | Yes, generally included |
| KiwiSaver contributions | No — not deducted from a redundancy payment at all | Usually yes, if the employee is a KiwiSaver member |
| Student loan repayments | Yes — still deducted, if the employee earns more than $464/week | Yes |
(Source: Inland Revenue — Calculate PAYE for a lump sum payment.)
Why this matters practically: because ACC and KiwiSaver are excluded, redundancy pay is taxed slightly more favourably than an equivalent bonus of the same size — a distinction that surprises a lot of people who assume all lump-sum payments are treated identically.
The 2026/27 Flat Tax Rates for Redundancy (Excluding ACC)
| Combined annualised income + lump sum | Flat rate applied to the lump sum |
|---|---|
| Up to $15,600 | 10.5% |
| $15,601 – $53,500 | 17.5% |
| $53,501 – $78,100 | 30% |
| $78,101 – $180,000 | 33% |
| $180,001+ | 39% |
(These match the standard income tax brackets, applied as a single flat rate rather than progressively — since redundancy specifically excludes the ACC earner’s levy that’s otherwise blended into most other lump-sum rate tables.)
Worked Example
Daniel earns $1,500/week gross ($78,000/year) and is made redundant, receiving a $15,000 redundancy payment under his employment agreement.
| Step | Calculation | Result |
|---|---|---|
| Annualise recent income | $1,500 × 52 | $78,000 |
| Add the lump sum | $78,000 + $15,000 | $93,000 |
| Find the matching flat rate | $93,000 falls in the $78,101–$180,000 band | 33% |
| Apply flat rate to the lump sum only | $15,000 × 33% | $4,950 tax withheld |
| Net redundancy payment received | $15,000 − $4,950 | $10,050 |
No ACC levy and no KiwiSaver are deducted from this $15,000 — if Daniel has a student loan and earns above $464/week, that repayment would still apply on top.
Compare this to your regular pay using our PAYE Calculator, and if you have a student loan, check the exact repayment impact with our Student Loan Calculator.
What About Notice Period Pay and Unused Annual Leave?
These are commonly paid alongside redundancy but are taxed differently:
- Payment in lieu of notice is generally taxed as ordinary salary/wages at your normal PAYE rate, not the extra pay method.
- Unused annual leave paid out is also typically treated as a lump sum extra pay, similar to redundancy, but — unlike redundancy specifically — usually does attract the ACC earner’s levy, since it falls under the general lump sum category rather than the redundancy-specific exclusion.
If you’re receiving several different payment types in one settlement, ask your employer (or accountant) for a breakdown of how each component is being taxed individually, rather than assuming a single flat treatment applies to the whole payment.
Frequently Asked Questions
Is redundancy pay taxed in New Zealand?
Yes. It’s taxed using the “extra pay” method — a flat tax rate based on your annualised income plus the lump sum — rather than your normal progressive PAYE rate.
Does ACC levy apply to redundancy pay?
No. Redundancy payments, along with retiring allowances and certain employee share scheme benefits, use the flat rate table that excludes the ACC earner’s levy — unlike most other lump sum payments such as bonuses.
Is KiwiSaver deducted from a redundancy payment?
No, KiwiSaver contributions are not deducted from a redundancy payment at all, regardless of whether the employee is a KiwiSaver member.
Are student loan repayments deducted from redundancy pay?
Yes, if the employee earns more than $464 a week, student loan repayments are still deducted from a redundancy payment.
Is there a legal right to redundancy pay in NZ?
No, New Zealand has no statutory redundancy entitlement. Whether an employee receives redundancy pay, and how much, depends on their employment agreement or a negotiated settlement.
How is the flat tax rate on redundancy pay calculated?
By annualising recent income (last 4 weeks × 13, or last 2 pay periods × the equivalent multiplier for employees ending employment), adding the lump sum, and applying the matching flat rate from IRD’s table to the entire lump sum amount.
Is payment in lieu of notice taxed the same as redundancy pay?
No, payment in lieu of notice is generally taxed as ordinary salary or wages at the normal PAYE rate, not using the extra pay flat-rate method used for redundancy.
What are the redundancy rules in New Zealand?
In New Zealand, an employer must have a genuine business reason for redundancy and follow a fair and proper process. The employer should consider alternatives, including redeployment, before making an employee redundant. The employee must receive the notice required under their employment agreement, or reasonable notice if no period is specified.
Redundancy compensation is not automatically required by New Zealand law. Whether you receive a redundancy payment depends mainly on your employment agreement and any agreement negotiated with your employer. Your final pay can also include unused annual holidays and other outstanding entitlements.
How much tax will I pay on $100,000 redundancy?
There is no single fixed tax amount on a $100,000 redundancy payment in New Zealand. Redundancy payments are taxable income, and your employer generally deducts PAYE before paying you.
For a redundancy payment made when employment ends, IRD calculates the PAYE rate by considering your recent earnings and adding the lump-sum payment to the annualised income figure. For the 2026/27 tax year, the relevant PAYE rates excluding ACC earners’ levy range from 10.5% to 39%, depending on the resulting income band. Redundancy payments do not attract the ACC earners’ levy.
Therefore, the tax on a $100,000 redundancy payment can differ substantially depending on your salary, pay frequency, tax code and other payments made when your employment ends.
How much tax will I pay on a redundancy payout?
A redundancy payout is generally taxable income in New Zealand. Your employer normally deducts PAYE from the payment before you receive it.
The PAYE deduction is treated as an extra-pay/lump-sum calculation, rather than simply applying your normal weekly or monthly PAYE rate to the payout. IRD’s 2026/27 rules use your recent earnings and the redundancy payment to determine the applicable rate.
For 2026/27, the income-tax rates are:
Income band Tax rate
$0–$15,600 10.5%
$15,601–$53,500 17.5%
$53,501–$78,100 30%
$78,101–$180,000 33%
Over $180,000 39%
These are the underlying income-tax rates; the actual PAYE withheld from a redundancy payout depends on the lump-sum calculation rules and your circumstances.
What is the tax-free limit for genuine redundancy payments in 2026?
There is no general tax-free limit for genuine redundancy payments in New Zealand in 2026/27. Redundancy payments are taxable income and are subject to PAYE.
The commonly repeated idea that New Zealand has a tax-free redundancy allowance or a tax-free redundancy threshold is outdated. IRD confirms that the historical redundancy tax relief was repealed, and the old redundancy tax credit only applied to payments made between 1 December 2006 and 30 September 2011.
So, for a redundancy payment made in the 2026/27 tax year, you should not assume that any portion is automatically tax-free.
What are the disadvantages of taking voluntary redundancy?
Voluntary redundancy can provide a useful financial payout, but there are several potential disadvantages:
1. You may give up your regular salary sooner than expected.
2. The redundancy payment is generally taxable, so the amount you receive after PAYE will be lower than the headline offer.
3. You may lose access to employer benefits or other employment-related benefits when your employment ends.
4. Finding another suitable job may take longer than expected.
5. A voluntary redundancy package may include specific conditions that you should understand before accepting it.
6. Your future income could be lower if you cannot immediately find equivalent employment.
7. Redundancy may affect income-tested assistance or tax-credit entitlements, depending on your circumstances. IRD notes that redundancy can affect Working for Families entitlements.
8. Before accepting voluntary redundancy, calculate the after-tax payout, estimate how long it could support you without employment income, and carefully review the redundancy agreement.
