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Thinking of rewarding a star player on your team with a bonus? Working out how much PAYE to deduct from bonuses or lump sums can be tricky but it’s all about choosing the right PAYE rate.
Bonus and lump sum payments can be things like annual or special bonuses, cashed-in annual leave, back-pay and retirementor redundancy payments. Overtime or any regular payments aren't considered lump sum payments.
Follow these steps to work out the PAYE rate to use for a lump sum payment:
| Income bracket | PAYE rate to use (including ACC eaners' levy) |
|---|---|
| $14,000 or less | 11.95% |
| $14,001 to $48,000 | 18.95% |
| $48,001 to $70,000 | 31.45% |
| Greater than $70,000, but less than the ACC earners' levy maximum threshold of $118,191 (for the 2015 tax year) | 34.45% |
| Greater than $118,191 | 33% (excludes ACC) |
You can use the PAYE rate of 34.45 cents in the dollar if the employee asks you to.
You need to calculate student loan repayments, KiwiSaver deductions and employer contributions on lump sum payments, if applicable.
ACC earners' levy should only be applied to earnings below the threshold of $118,191, and you don't deduct the ACC levy from redundancy payments and retiring allowances. In these cases, you'll need to reduce the above rates by 1.45%. Redundancy payments and retiring allowances are exempt from KiwiSaver employee deductions and employer contributions.
If your employee uses a secondary tax code, follow steps one to three above, add the low threshold amount based on the secondary tax code they're using, as listed below, and deduct PAYE at the rate for this annual income estimate.
| Low threshold amount | |
|---|---|
| SB | $0 |
| S or S SL | $14,001 |
| SH or SH SL | $48,001 |
| ST or ST SL | $70,001 |
Jay has a second job and uses the ST tax code. Her secondary employer wants to pay her a one-off bonus of $20,000. In the last four weeks Jay has earned $2,695 from her second job.
| Annualised income ($2,695 × 13) | $35,035 |
|---|---|
| Plus low threshold amount (based on ST tax code) | $70,001 |
| Plus the bonus | $20,000 |
| Annual income | $125,036 |
| PAYE on bonus | $20,000 × 34.45% | $6,890.00 |
|---|---|---|
| Extra pay not liable for the earners' levy | $125,036 – $118,191 | $6,845.00 |
| ACC on amount not liable | $6,845 × 1.45% | $99.25 |
| PAYE applied to bonus (full PAYE on bonus minus ACC on amount not liable) | $6,890 – $99.25 | $6,790.75 |
Find out more about taxing lump sum payments on the Inland Revenue website(external link).