Paid Parental Leave in NZ: Tax, PAYE, and 2025-26 Payment Rates

Paid Parental Leave (PPL) is a government payment made by Inland Revenue to new parents who take time off work to care for a newborn or newly adopted child. While most people know PPL is available, fewer people understand exactly how it is taxed, how it interacts with KiwiSaver and student loans, and what tax code to use. This article explains the tax treatment of PPL for the 2025-26 tax year with worked NZD examples.

2025-26 PPL Payment Rates

PPL is paid for up to 26 weeks and is calculated as the greater of the statutory minimum or your ordinary weekly pay, capped at a weekly maximum that is adjusted each 1 July.

These amounts are gross — PAYE is deducted before you receive the payment. Rates change each 1 July: from 1 July 2026 the maximum rises to $811.05 per week and the self-employed minimum to $239.50 (MBIE announcement).

PPL Is Taxable Employment Income

IRD treats PPL as employment income. That means:

• PAYE is deducted at your chosen tax code
• Income counts toward your annual income for Working for Families and other credit calculations
• The payment appears on your annual IR3 or income summary
• The gross amount counts toward the $152,790 earnings threshold, though ACC is NOT taken from it

Which Tax Code to Use

The tax code you give IRD for PPL depends on whether PPL is your only income during the leave period.

Most parents on PPL stop working entirely during the 26 weeks, so the M code is usually correct. If you are returning to work partway through or still receiving employer top-ups, a secondary code is needed on the smaller of the two income streams.

Worked Example 1: PPL as Sole Income

Sarah earns $75,000 at her job. She goes on PPL from June 2025 for 26 weeks. Her ordinary weekly pay ($1,442.31) is above the maximum, so she receives the maximum $788.66 per week.

She does not pay ACC levy on PPL, and KiwiSaver deductions do not automatically come out — she can choose to make voluntary contributions if she wants to keep building her balance.

Worked Example 2: PPL With Employer Top-Up

Many employers pay a top-up to bring PPL closer to the employee’s ordinary salary. These top-ups are paid by the employer, are ordinary wages, and are subject to full PAYE, ACC levy, KiwiSaver, and student loan deductions.

Lisa earns $95,000. Her employer tops up PPL with 12 weeks of 50% of her ordinary salary ($912.50 gross per week).

Lisa should use the M code for PPL (her primary income during leave) and a secondary code (S or SH based on total annual income) on the employer top-up to avoid being over-taxed by the M code applying twice.

KiwiSaver and PPL

KiwiSaver contributions are not automatically deducted from PPL. If you want to keep contributing during parental leave, you have three options:

1. Voluntary contributions to your KiwiSaver provider — lump sum or regular. This also counts toward the $1,042.86 needed for the full government contribution.
2. Salary sacrifice on employer top-ups — any employer-paid top-up can include KiwiSaver deductions as usual.
3. Pause and resume — stop contributing during leave and restart on return. A contributions holiday (“savings suspension”) can be requested from IRD.

Many parents choose to contribute at least $1,042.86 across the year to qualify for the 25-cents-per-dollar government contribution up to $260.72 (2025-26 rate).

Self-Employed PPL

Self-employed parents can claim PPL at the rate of their average weekly self-employment income, capped at $788.66 and floored at the $235.00 minimum. PPL for self-employed parents is taxed the same way — PAYE deducted by IRD on the gross weekly payment — but these parents still need to file an IR3 at year end, with self-employment income and the PPL amount both reported.

Interaction with Working for Families

PPL income does count toward your family’s taxable income for Working for Families Tax Credits. If your household income is close to a WfF threshold, the 26 weeks of PPL may reduce your WfF entitlement for that year.

Whether that also reduces the Best Start Tax Credit in your baby’s first year now depends on the child’s date of birth, not on the tax year. For a child born before 1 April 2026, the first year of Best Start is not income-tested at all — the abatement formula in the Income Tax Act 2007 s MG 3(2)(b)(i) excludes every day the child is under 1 year old — so a high-PPL year makes no difference to it. For a child born on or after 1 April 2026, that exclusion no longer applies: year one abates like years two and three, at 21 cents for each complete dollar of family scheme income above $79,000 (s MG 3(2)(a)). The change was made by section 8 of the Taxation (Budget Measures) Act 2025. Years two and three have always been income-tested on the same terms.

Key Takeaways

• PPL is fully taxable at your chosen tax code, with IRD deducting PAYE before payment
• 2025-26 maximum is $788.66 per week gross; minimum for self-employed is $235.00 (from 1 July 2026: $811.05 / $239.50)
• No ACC earner’s levy and no automatic KiwiSaver deductions from PPL
• Student loan repayments still apply above the weekly threshold
• Employer top-ups are ordinary wages — full ACC, KiwiSaver, and student loan apply
• Choose the right tax code: M if PPL is your only income, secondary (S/SH/ST/SB) if you have other income

To estimate net take-home during parental leave, use our PAYE calculator with the gross weekly PPL amount, or the take-home pay calculator to model combined PPL + employer top-up scenarios. For how parental leave affects your KiwiSaver government contribution, see our KiwiSaver government contribution guide.