RWT
Resident Withholding Tax (RWT) is tax deducted at source from interest and dividend income paid to New Zealand tax residents. When your bank pays you interest on a savings account or term deposit, they deduct RWT before crediting your account.
You can elect an RWT rate based on your income level: 10.5%, 17.5%, 30%, 33%, or 39%. Choosing a rate that matches your marginal tax rate means you won't have a tax bill or refund on that interest income at year end. If you don't provide a rate, the default 33% rate applies.
RWT-deducted income is included in your annual income tax assessment. If your elected RWT rate was lower than your actual marginal rate, you'll owe the difference. If it was higher, you'll receive a refund. For a more tax-efficient option on interest income, consider PIE term deposits, which cap the tax rate at 28%.
How it works
When you open an interest-bearing account or hold NZ shares that pay dividends, you're asked to elect an RWT rate, and that election should match your marginal tax rate — not your effective (average) rate — because RWT is designed to withhold tax on interest and dividends as if they were the top slice of your income for the year, the same logic used for choosing a secondary tax code.
RWT reconciles through the same annual income tax assessment that covers your salary or wages. If your elected rate was too low, you'll see extra tax to pay; if it was too high, you'll see a refund — this is a key structural difference from PIE tax, where an elected rate that's too high generally can't be corrected after the fact.
For interest income specifically, PIE-registered term deposits are often a more tax-efficient alternative to an ordinary RWT-taxed savings account or term deposit for anyone on the 30%, 33%, or 39% marginal rate, since PIE tax on that income is capped at the top PIR of 28% rather than being withheld at your full marginal rate.
Example: RWT rate mismatch on a term deposit
Priya's marginal tax rate is 30% (income in the $53,501–$78,100 band), but she never updated the RWT rate on her term deposit from the default 33%. She earns $2,000 of interest for the year.
RWT actually deducted = 33% x $2,000 = $660. Her correct tax on that interest at her 30% marginal rate = 30% x $2,000 = $600 — so she's owed a $60 refund via her end-of-year income tax assessment.
If instead Priya had elected too low a rate — say 17.5% — RWT deducted would have been 17.5% x $2,000 = $350, against a correct liability of $600, leaving her owing an extra $250 at year end.
Frequently asked questions
Does RWT apply to interest earned inside KiwiSaver or a PIE term deposit?
No — PIE-registered term deposits and KiwiSaver funds are taxed under the PIE/PIR rules instead of RWT, which is why many banks offer both a standard RWT-taxed term deposit and a separate PIE-linked version with a PIR-based rate capped at 28%.
What happens if I never tell my bank my RWT rate?
Your bank must apply the default rate of 33% regardless of your actual income, so if your marginal rate is lower, you're prepaying more tax than necessary until it's corrected in your annual income tax assessment.
Should my RWT rate match my marginal rate or my effective tax rate?
Your marginal rate — RWT is meant to withhold tax on interest as if it were the top slice of your income, so matching your marginal rate (not your lower effective rate) avoids ending up with a tax bill or an unnecessary wait for a refund at year end.
Related Terms
Income Tax
New Zealand income tax is calculated using a progressive bracket system.
IRD
Inland Revenue Department (IRD), commonly known as Inland Revenue or simply IRD, is the New Zealand government agency responsible for collecting taxes, distributing social support payments, and enforcing tax compliance.
PIE
A Portfolio Investment Entity (PIE) is a type of managed investment fund that is taxed at the investor's Prescribed Investor Rate (PIR) rather than the standard income tax rates.
Imputation Credit
Imputation credits prevent the same company profit being taxed twice — once at the company level and again when it's paid out as a dividend to shareholders.