Extra Pay
Extra pay is IRD's category for one-off payments outside your regular salary or wages — bonuses, backpay, retiring or redundancy payments, cashed-up annual leave, and similar lump sums. IRD taxes extra pay differently from your regular pay: instead of running the payment through the normal progressive brackets, the whole extra payment is taxed at a single flat rate.
That rate is found by 'grossing up' your annualised regular income with the extra payment, working out which income tax bracket the combined total falls into, and then applying that one bracket's rate to the ENTIRE extra payment — even if the payment itself straddles a bracket boundary. This can feel like a higher deduction than expected on a bonus, but any over-deduction squares up through your end-of-year income tax assessment.
Because the rate depends on your annualised regular income, the same size bonus can be taxed at different rates for different employees. Extra pay calculations also flow through to ACC earner's levy, KiwiSaver, and student loan deductions on the same payment, each applying their own rules to the extra amount.
How it works
The 'grossing up' calculation works by adding the extra payment to your annualised regular income to estimate your total yearly earnings, then finding which tax bracket that combined total falls into. Whatever rate applies to that bracket is then charged on the ENTIRE extra payment — not split across brackets the way your regular salary is — so a bonus large enough to tip you into a higher bracket gets taxed at that higher rate on its full amount, not just the portion above the bracket boundary.
Because the calculation only estimates your annual position at the moment the extra pay is processed, it can over- or under-deduct compared with your true year-end liability, especially if your income varies through the year or you have multiple jobs. Any mismatch is automatically corrected at your end-of-year income tax assessment, when IRD reconciles what was actually deducted against what you actually owed on your real total income.
The extra pay rules apply to more than bonuses — backpay, cashed-up annual leave, and retirement or redundancy payments are all treated the same way for PAYE purposes. Because extra pay deductions also feed into ACC earner's levy and student loan calculations (KiwiSaver treatment varies by payment type), a single lump sum can trigger several different withholding calculations at once, which is why a payslip for a bonus often looks more heavily taxed than expected.
Frequently asked questions
Will I get back any extra tax deducted from a bonus if too much was withheld?
Yes — any over-deduction from the extra pay calculation is automatically squared up at your end-of-year income tax assessment, when IRD compares total deductions against your actual annual tax liability.
Does the extra pay method apply to overtime pay as well as bonuses?
No — regular overtime that's paid as part of your normal pay cycle is usually taxed under ordinary PAYE rules; extra pay treatment is reserved for one-off lump sum payments outside your regular salary structure.
Why did my bonus get taxed at a higher rate than my regular pay?
Because the whole bonus is taxed at a single flat rate worked out from your grossed-up annual income, rather than being spread across the lower brackets the way your ordinary salary is, which can make the deduction look higher than expected.
Related Terms
Secondary Tax
If you have more than one job or income source, your secondary employer deducts tax using a secondary tax code.
Redundancy Payment
A redundancy payment compensates an employee whose role is genuinely disestablished, typically set out in an employment agreement or negotiated at the time of restructuring.
Tax Code
A tax code is a code you provide to your employer (on an IR330 form) that determines how PAYE is calculated on your pay.
Try the calculator
Use our free tool to see how extra pay affects your tax.