Residual Income Tax (RIT) Explained
Residual income tax (RIT) is your income tax bill for the year after subtracting the tax already paid at source — mainly PAYE and RWT — and any tax credits. In plain terms, it's the tax you still owe (or are owed back) once everything deducted during the year is taken into account. RIT matters most because of one number: if your RIT is more than $5,000, you generally become a provisional taxpayer the following year.
How residual income tax is calculated
Start with your total income tax liability for the year — the tax due on all your taxable income at the normal brackets. Then subtract the tax already accounted for:
- PAYE deducted from salary or wages.
- RWT deducted from interest and dividends.
- Tax credits you're entitled to, such as the IETC or imputation credits.
What's left is your residual income tax. If it's positive, you owe IRD that amount. If it's negative, you're due a refund. For most people whose only income is salary or wages with the right tax code, RIT is close to zero because PAYE already covers the full bill.
Worked example
Suppose you earn $80,000 in salary (PAYE deducted) plus $20,000 of self-employment income with no tax withheld.
- Total tax on $100,000 of income for 2025-26 is roughly $23,920.
- PAYE already deducted on the $80,000 salary is roughly $17,320.
- Residual income tax = $23,920 − $17,320 = about $6,600.
Because that RIT is over $5,000, you'd be required to pay provisional tax during the following year. (Figures are illustrative — use the calculators below for your own numbers.)
The $5,000 RIT threshold and provisional tax
RIT is the trigger for provisional tax. Inland Revenue's rule is: if your residual income tax for a year is more than $5,000, you must pay provisional tax in the next year — paying your expected tax in instalments rather than as one lump sum after year end.
This catches anyone with growing untaxed income: contractors, landlords, investors, and people with overseas income. The first year you cross the threshold you can owe both the prior year's RIT and the new year's provisional instalments, so it pays to plan ahead once your non-PAYE income approaches the level that would push RIT over $5,000.
Use-of-money interest (UOMI)
If you underpay your tax during the year, Inland Revenue charges use-of-money interest on the shortfall from the relevant instalment or terminal tax date until you pay. Conversely, IRD can pay you interest if you overpay. UOMI is separate from late-payment penalties.
Keeping your RIT estimate accurate — and paying provisional instalments on time — is the main way to avoid UOMI. If your income is uneven, the estimation method for provisional tax lets you base instalments on a realistic forecast rather than last year's figure.
Check your residual income tax
Use these free calculators to estimate the income tax on your total income, and to model the self-employment or provisional tax that flows from a high RIT.
Income Tax Calculator
Calculate the total income tax on your combined income before deducting PAYE and RWT already paid.
Provisional Tax Calculator
Work out your provisional tax instalments if your RIT is over $5,000, using the standard or estimation method.
Self-Employment Tax Calculator
Estimate the tax on untaxed business income that drives your residual income tax above the $5,000 threshold.
Related Terms
Provisional Tax
Provisional tax is how self-employed individuals, companies, and others with significant non-PAYE income pay their expected income tax during the year, rather than as a lump sum after year end.
Income Tax
New Zealand income tax is calculated using a progressive bracket system.
PAYE
PAYE (Pay As You Earn) is the system that New Zealand employers use to deduct income tax from employees' wages and salaries.