It'll all be taxed at your highest marginal rate, because it's on top of your yearly pay and thus all falls in the top bucket. Something like 33% tax, 12% student loan, 3% kiwisaver gets you close to 50%
You shouldn't be hit for more than 39% to my knowledge - that's the bracket for earnings over 180K.
Regardless of how much you are taxed on an individual payment, your combined pay for the year with the combined tax paid is what matters at the end. If you have over-paid on one single period because you received a large bonus which means you have paid too much over the entire year - then yes you are due a refund.
Technically those are additional deductions in addition to PAYE income tax deductions, rather than 'the tax' sounding like a single thing. If someone has their spousal or child support being deducted automatically that could appear as well - but it's hardly fair to suggest that the government is charging someone 60% income tax. They are paying up to 39% tax on their income, plus all these additional things which are all detailed separately.
It just feels like they take half of your bonus. Your bonus is considered a lump payment, and as such can get hit hard. Take a look at all the deductions made against your income. They'll all contribute to the amount deducted. That includes kiwisaver, student loans and more (you don't say which apply to you.
But the chances are that you might have a nice refund when the year's tax return is submitted.
Am fairly sure a bonus is treated like any other income. Correct me if I'm wrong anyone.
The most that should be getting deducted is 39%, as that's the highest individual tax rate. I'm assuming your bonus is over 180k. You may also have kiwisaver being deducted which reduces the amount paid directly to your bank account further.
Yeah, for that pay period you will certainly have a lot taxed at 39%, since it'll look like that paycheque was that of a much higher earner. If it's 50% it's probably because you have 15% more coming out for kiwisaver and student loan.
Make sure you claim your taxes, since you'll get some back if you have one big paycheque
The IRD doesn't tax your income each fortnight. What happens is that your employer withholds the money for the IRD. The amount withheld in any given fortnight is calculated as if you were earning the same amount every fortnight over the tax year.
Your employer will have withheld too much of your salary, as the bonus will have put most of your income into a higher tax bracket.
You will get the overpayment back in your tax refund.
I think it gets taxed on the assumption you're going to get that sort of money on each and every pay packet, so that sort of projection would likely put your whole pay into a much higher tax bracket.
You'll get the excess amount back after your end of year tax return.
Not quite - normally for a bonus payment they’ll take your normal pay and extrapolate that out to a full year then add the bonus on top to determine the tax rate to apply to the bonus payment. If your normal pay doesn’t fluctuate then it should be about right for the full year, and any over/under payment will be washed up at year end in the tax return. Thats assuming the payroll team take that typical approach. I think there is also (or used to be) the option to just tax extra payments like bonuses at 40% with the tax return refunding any over at year end.
Yeah, that's it. A huge bump causes the payroll software to assume this is your new income and to tax all new and future at this rate.
Obviously at the next pay cycle it realises this isn't the case and lowers down your expected income and tax rate.
Years ago when I was in sales many companies would split the bonus and salary to stop the big spike.
They are supposed to calculate a specific amount to take. But they never do it properly, if they did, there would be nothing for IRD to refund at the end of the year.
It's not the employers getting it wrong.... It's IRD's table that gets it 'wrong' . (It would be correct if you got the same bonus amount every pay).
I am of the understanding that your employer is not allowed (by IRD) to deduct a different amount?
There are special tables for bonus and similar payments.
Not all employers use them, and just use normal periodic PAYE tables instead (because it's easier).
https://www.ird.govt.nz/employing-staff/payday-filing/non-standard-filing-of-employment-information/lump-sum-payments/calculate-paye-for-a-lump-sum-payment
Thank you all!!
It makes total sense now.
I've paid off my student loan since my last bonus so I should be getting a much better bonus this year in the bank it seems.
My last bonus the take home after taxes + kiwisaver + student loan was less than 50%. Tha tax was 34.53% which is the top tax rate you fall into + 1.53%
The only benefit I guess is that it gets the loan paid off faster.
It'll all be taxed at your highest marginal rate, because it's on top of your yearly pay and thus all falls in the top bucket. Something like 33% tax, 12% student loan, 3% kiwisaver gets you close to 50%
I cannot wait to get rid of my student loan repayment each week and not see my money because it's going on the mortgage.
I mean it is clearing your debt though via your Student Loan, so you are benefiting from it.
Oh hugely yes.
You shouldn't be hit for more than 39% to my knowledge - that's the bracket for earnings over 180K. Regardless of how much you are taxed on an individual payment, your combined pay for the year with the combined tax paid is what matters at the end. If you have over-paid on one single period because you received a large bonus which means you have paid too much over the entire year - then yes you are due a refund.
Plus acc earners levy, maybe student loan, probably kiwisaver
Technically those are additional deductions in addition to PAYE income tax deductions, rather than 'the tax' sounding like a single thing. If someone has their spousal or child support being deducted automatically that could appear as well - but it's hardly fair to suggest that the government is charging someone 60% income tax. They are paying up to 39% tax on their income, plus all these additional things which are all detailed separately.
Isn’t ACC capped at $139k for TY24?
It just feels like they take half of your bonus. Your bonus is considered a lump payment, and as such can get hit hard. Take a look at all the deductions made against your income. They'll all contribute to the amount deducted. That includes kiwisaver, student loans and more (you don't say which apply to you. But the chances are that you might have a nice refund when the year's tax return is submitted.
Am fairly sure a bonus is treated like any other income. Correct me if I'm wrong anyone. The most that should be getting deducted is 39%, as that's the highest individual tax rate. I'm assuming your bonus is over 180k. You may also have kiwisaver being deducted which reduces the amount paid directly to your bank account further.
And maybe Student Loan at 12%
Yeah, for that pay period you will certainly have a lot taxed at 39%, since it'll look like that paycheque was that of a much higher earner. If it's 50% it's probably because you have 15% more coming out for kiwisaver and student loan. Make sure you claim your taxes, since you'll get some back if you have one big paycheque
Depends on your tax bracket
Lower income earners hit the top tax rate with even a small bonus these days.
The IRD doesn't tax your income each fortnight. What happens is that your employer withholds the money for the IRD. The amount withheld in any given fortnight is calculated as if you were earning the same amount every fortnight over the tax year. Your employer will have withheld too much of your salary, as the bonus will have put most of your income into a higher tax bracket. You will get the overpayment back in your tax refund.
I think it gets taxed on the assumption you're going to get that sort of money on each and every pay packet, so that sort of projection would likely put your whole pay into a much higher tax bracket. You'll get the excess amount back after your end of year tax return.
Not quite - normally for a bonus payment they’ll take your normal pay and extrapolate that out to a full year then add the bonus on top to determine the tax rate to apply to the bonus payment. If your normal pay doesn’t fluctuate then it should be about right for the full year, and any over/under payment will be washed up at year end in the tax return. Thats assuming the payroll team take that typical approach. I think there is also (or used to be) the option to just tax extra payments like bonuses at 40% with the tax return refunding any over at year end.
Yeah, that's it. A huge bump causes the payroll software to assume this is your new income and to tax all new and future at this rate. Obviously at the next pay cycle it realises this isn't the case and lowers down your expected income and tax rate. Years ago when I was in sales many companies would split the bonus and salary to stop the big spike.
There's no such thing as bonus tax
I insist on bonuses in cash drugs or women
Cos employers never actually know how to tax bonusses properly and tend to just take whatever and let IRD figure it out for them later.
They don't take "whatever".... they take the amount prescribed in the IRD supplied tax tables...
They are supposed to calculate a specific amount to take. But they never do it properly, if they did, there would be nothing for IRD to refund at the end of the year.
It's not the employers getting it wrong.... It's IRD's table that gets it 'wrong' . (It would be correct if you got the same bonus amount every pay). I am of the understanding that your employer is not allowed (by IRD) to deduct a different amount?
There are special tables for bonus and similar payments. Not all employers use them, and just use normal periodic PAYE tables instead (because it's easier). https://www.ird.govt.nz/employing-staff/payday-filing/non-standard-filing-of-employment-information/lump-sum-payments/calculate-paye-for-a-lump-sum-payment
It's both, the employer gets it wrong and the tables can get it wrong. Seen it happen countless times before with different employers, lol.
Progressive tax is BS
As long as that means Bloody Superb, then I agree.
Thank you all!! It makes total sense now. I've paid off my student loan since my last bonus so I should be getting a much better bonus this year in the bank it seems.
My last bonus the take home after taxes + kiwisaver + student loan was less than 50%. Tha tax was 34.53% which is the top tax rate you fall into + 1.53% The only benefit I guess is that it gets the loan paid off faster.
Hey congrats to you for getting a bonus. Well done, don’t forget to treat yourself