How redundancy pay is taxed in NZ (2026/27)

Redundancy pay is ordinary taxable income, taxed as an extra pay (a lump sum) at one flat rate. Since 1 April 2025 your employer works out that rate by annualising your last two pay periods and adding the redundancy payment. There is no ACC earners' levy and no KiwiSaver deduction on it, but pay in lieu of notice and holiday pay paid at the same time are taxed differently. In 2026/27 most people pay 30% or 33% on their redundancy, and any over-deduction comes back after 31 March.

Redundancy pay is an extra pay, taxed at one rate

Inland Revenue is blunt about it: "A redundancy payment is taxable income, so you need to pay income tax on it." There is no special lower rate. Your employer deducts PAYE on it as an extra pay, the same family of payments as a bonus or a lump sum of back pay. The IR335 Employer's guide (September 2026 edition) lists redundancy payments among lump sum payments.

The important difference from your normal pay is that one marginal rate applies to the whole payment. It is not spread across the brackets. Your employer works out an annualised income, adds the redundancy payment, finds which bracket that total falls into, and applies that bracket's rate to every dollar of the redundancy.

Because redundancy carries no ACC levy, the employer uses the rate excluding the levy. For the 2026/27 tax year (1 April 2026 to 31 March 2027) those rates are:

Source: IR335, p.40, and IRD's end of employment lump sum page (updated 20 April 2026). A common myth is that redundancy is always taxed at 39%. It only is if your annualised pay plus the payment is over $180,000.

The two pay period rule, in force since 1 April 2025

For an extra pay that comes from the end of your employment, paid on or after 1 April 2025, your employer annualises the PAYE income from your last 2 pay periods before the pay period the redundancy is paid in. Before 1 April 2025 the method was your last 4 weeks' pay times 13, and that older method still applies to other extra pays such as a mid-year bonus. The legal source is section RD 17(1BA) of the Income Tax Act 2007, set out in IRD's 2026/27 payroll specification (s5.12).

A few details that change the answer:

• Other extra pays made in those 2 pay periods are left out, and out-of-cycle payments do not count as pay periods.
• If you have only 1 earlier pay period, that one is annualised. If you have none, you can give your employer a tax code based on your expected income for the year.
• On a secondary code, the employer first adds the code's low threshold: SB $0, S $15,601, SH $53,501, ST $78,101, SA $180,001.
• If other lump sums are paid at the same time as the redundancy, they all go through this same end of employment calculation.

The rule matters most when your last few pays were lower than usual, for example after hours were cut during a restructure. Take a weekly worker paid $1,400 a week, cut to $700 for the last two weeks, who receives $10,000 redundancy. Under the old method, 4 weeks of $4,200 times 13 is $54,600, plus $10,000 is $64,600: taxed at 30%, or $3,000. Under the current rule, 2 weeks of $1,400 times 26 is $36,400, plus $10,000 is $46,400: taxed at 17.5%, or $1,750.

Worked example: $20,000 redundancy on $3,500 a fortnight

Aroha is paid $3,500 a fortnight (about $91,000 a year) on the M tax code, with KiwiSaver at 3.5%. Her employer pays her $20,000 redundancy compensation in her final pay in the 2026/27 tax year.

If her employer had wrongly added the levy, the rate would have been 34.75% and PAYE $6,950, so the levy exemption is worth $350 to her. If Aroha has a student loan, deductions can still apply to a lump sum: where the extra pay is paid separately and the pay period amount cannot be worked out, IRD's payroll specification says to take 12% of the whole extra pay, which is $2,400 here.

Her ordinary $3,500 fortnight in the same final pay goes through the normal PAYE tables: $826.92 PAYE (income tax $765.66 plus ACC levy $61.26) and $122.50 KiwiSaver. You can check a regular pay in the PAYE calculator.

Example from IRD itself (payroll specification 2026/27, p.58): fortnightly pay $3,500 and a $1,000 redundancy gives $92,000, so 33% excluding levy, or $330.

No ACC levy and no KiwiSaver: where that comes from

ACC levy. Section 11(1)(e) of the Accident Compensation Act 2001 says earnings as an employee do "not include... any redundancy payment". No earners' levy is payable, which is why IR335 heads its section "Redundancy or retirement payments (no ACC earners' levy applies)". Your employer reports the payment as earnings not liable for the levy. For comparison, the 2026/27 levy on ordinary pay is 1.75%, up to $156,641 of earnings.

KiwiSaver. Redundancy payments are excluded from salary or wages for KiwiSaver. IRD's redundancy and KiwiSaver page says: "Contributions will not be deducted from any redundancy payment you get." IR335 tells employers to deduct KiwiSaver on lump sums "Unless the lump sum payment is for redundancy". An employer contribution on redundancy is optional, not compulsory.

Other tax codes.

• Tailored tax code: the redundancy is taxed at your tailored rate minus the levy, so a 24% tailored rate becomes 22.25%.
• No tax code given (ND): 45%, not the usual 46.75%. On $20,000 that is $9,000, so give your employer an IR330 before your last day.
• NSW code: 10.5% rather than 12.25%.

Pay in lieu of notice and other payments that are not redundancy

IR335 (pp.43 to 44) lists payments that are not redundancy payments for tax, even when they arrive in the same final pay. These are taxed as normal extra pays with the ACC levy, and KiwiSaver applies:

• accumulated annual leave, long service leave and sick leave paid out;
• payment in lieu of notice, meaning a payment "made instead of giving an employee notice";
• deferred wages paid when you finish, such as holiday pay, accrued bonuses and commissions;
• payments at the end of a fixed-term contract, or solely because of a seasonal lay-off;
• payments where the employment is not truly ended: the same employer, the same business under new ownership, a company at least 50% owned by the same shareholders, or being rehired within 6 months into substantially the same job after a merger, takeover or restructure.

Back to Aroha. Say she also gets 4 weeks' pay in lieu of notice, $7,000. Annualised, that is $91,000 plus $7,000, or $98,000, in the $78,101 to $156,641 band, so the rate is 34.75% including the levy. PAYE is $2,432.50 ($2,310 income tax plus $122.50 levy) and her 3.5% KiwiSaver deduction is $245. Adding the redundancy as well still leaves the total in the same band, so the rate is 34.75% either way. Check your payslip shows these as separate lines: if notice pay has been lumped in with redundancy, the levy and KiwiSaver will be wrong.

The bonus tax calculator works out the extra pay rate including the levy, which suits notice pay and holiday pay. For the redundancy line, use the excluding-levy rates above.

Redundancy compensation is contractual, but notice is not optional

New Zealand law sets no minimum redundancy payment. Employment New Zealand (page updated 19 October 2026) states: "An employer does not have to provide redundancy compensation." You are owed it only if it is in your employment agreement, in a workplace policy, or agreed with your employer. Formulas such as "4 weeks plus 2 weeks per year of service" come from individual or collective agreements, not from statute.

Notice is a different matter. If you are made redundant, your employer must give you the notice period in your agreement, or reasonable notice if the agreement is silent. Employment New Zealand says two to four weeks is usually considered reasonable, depending on the role, length of service and industry norms. Paying you instead of having you work the notice needs "some form of agreement".

Your final pay must include your final wages, holiday pay, any redundancy compensation and any other amounts owed. Redundancy compensation is usually paid in the final pay. Our guide to leaving a job and your final pay covers the holiday pay side.

What to do before your last day:

• Find the redundancy clause in your agreement or policy and work out the amount yourself.
• Ask your employer to show redundancy, notice pay and holiday pay as separate lines.
• Confirm your employer has a current IR330 tax code for you, so you are not taxed at the ND rate.

The old redundancy tax credit, and squaring up at year end

Older articles mention a redundancy tax credit. It applied only to redundancy payments made from 1 December 2006 to 30 September 2011. It was cancelled with effect from 30 September 2011, and the legislation was repealed on 1 April 2012 (IRD tax technical article on the Taxation (Canterbury Earthquake Measures) Act 2011). Nothing replaced it: redundancy paid in 2026/27 gets no credit.

PAYE on a lump sum is an estimate. It assumes you would have kept earning at your recent rate for the whole year. If you then earn less, for example while you look for work, your real top rate may be lower than the rate taken from your redundancy. IRD's position is: "At the end of the tax year we work out if you've paid the right amount of tax." After 31 March 2027, IRD's year-end assessment squares up the 2026/27 year and refunds any over-deduction. If you move straight into a higher-paid job, it can go the other way. Our guide to year-end refunds and bills explains how the assessment works.

Questions people ask

Is redundancy pay taxed at 39% in New Zealand?

Only if your last two pay periods annualised, plus the redundancy payment, come to more than $180,000 in the 2026/27 tax year. Most people pay 30% or 33%, applied as one flat rate to the whole payment, with no ACC levy added.

Does ACC levy come off redundancy pay?

No. Section 11(1)(e) of the Accident Compensation Act 2001 excludes redundancy payments from earnings for the levy. The levy does still apply to holiday pay and pay in lieu of notice paid in the same final pay.

Is KiwiSaver deducted from redundancy pay?

No. Inland Revenue says contributions will not be deducted from any redundancy payment, and an employer contribution on it is optional. KiwiSaver is still deducted from ordinary wages and holiday pay in your final pay.

Does my employer have to pay me redundancy?

Not by law. Redundancy compensation is owed only if it is in your employment agreement or a workplace policy, or you agree it with your employer. Your employer must still give you the notice in your agreement, or reasonable notice.

Will I get some of the tax back?

Possibly. PAYE on redundancy assumes you keep earning at your recent rate. If your total income for the 2026/27 year is lower, IRD refunds the over-deduction in its year-end assessment after 31 March 2027.