Income Tax
New Zealand income tax is calculated using a progressive bracket system. Unlike many other countries, there is no personal allowance or tax-free threshold — tax applies from the first dollar earned. For 2026-27, the rates are: 10.5% on income up to $15,600, 17.5% on $15,601–$53,500, 30% on $53,501–$78,100, 33% on $78,101–$180,000, and 39% on income over $180,000.
Because the system is progressive, each bracket rate only applies to income within that range. For example, someone earning $60,000 pays 10.5% on the first $15,600, then 17.5% on the next $37,900, then 30% on the remaining $6,500 — giving an effective tax rate of about 17%, well below the 30% marginal rate.
Income tax applies to salary, wages, self-employment income, rental income, interest, dividends, and certain capital gains (such as bright-line property sales). Most employees have income tax deducted automatically through PAYE.
How it works
New Zealand tax residents pay income tax on their worldwide income — salary, self-employment, overseas earnings, and investment income all count. Non-residents are generally only taxed on income sourced in New Zealand. Which category you fall into affects what you need to declare, even if the tax rates applied are the same progressive brackets.
How your income tax gets collected depends on the type of income. Salary and wages go through PAYE, bank interest and dividends have Resident Withholding Tax deducted at source, KiwiSaver and other PIE investment income is taxed at your Prescribed Investor Rate, and self-employment, rental, or overseas income is generally reported and paid through an IR3 return and provisional tax instalments during the year.
A common misunderstanding is treating the top bracket you're in as the rate applied to your whole income. Because the system is progressive and there's no tax-free threshold, every bracket below your top one still keeps its own lower rate — this is the difference between your marginal tax rate and your effective (average) tax rate.
Example: income tax on a $90,000 salary
For 2026-27, tax on $90,000 is worked out bracket by bracket: 10.5% on the first $15,600 ($1,638), 17.5% on the next $37,900 up to $53,500 ($6,632.50), 30% on the next $24,600 up to $78,100 ($7,380), and 33% on the remaining $11,900 up to $90,000 ($3,927).
Adding those up gives total income tax of $19,577.50 — an effective rate of about 21.8%, even though the 33% marginal bracket applies to the top slice of that income.
Frequently asked questions
Is there a tax-free threshold in New Zealand?
No — unlike some countries, New Zealand has no personal allowance or tax-free bracket, so income tax applies from the very first dollar you earn at the lowest bracket rate.
Do I pay income tax on bank interest and dividends?
Yes, though it's usually collected differently — interest and dividends generally have Resident Withholding Tax deducted at source rather than going through PAYE.
What if I have income from more than one source?
Each source is taxed through its own mechanism (PAYE, RWT, PIE tax, or an IR3 return), and IRD reconciles everything together at year end to work out your final residual income tax position.
Related Terms
PAYE
PAYE (Pay As You Earn) is the system that New Zealand employers use to deduct income tax from employees' wages and salaries.
Effective Tax Rate
The effective tax rate (also called the average tax rate) is your total income tax divided by your gross income, expressed as a percentage.
Marginal Tax Rate
Your marginal tax rate is the tax rate that applies to your next (or last) dollar of income — in other words, the rate of the highest tax bracket you fall into.
Try the calculator
Use our free tool to see how income tax affects your tax.