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Tax after redundancy: final pay tax, tax codes and IRD help

8 minute readMoney & bills

In short

Your final pay is taxed through PAYE like normal pay, and a redundancy payment is usually taxed as an extra pay at a flat-looking but sometimes higher rate that IRD sorts out at year end. Check you're on the right tax code (M for most people) to avoid over- or under-paying. If you owe IRD and can't pay, ring them early for a payment arrangement; they have hardship options.

How final pay and redundancy are taxed

Final wages, holiday pay and notice pay are taxed through PAYE. A redundancy compensation payment is typically treated as an 'extra pay' and PAYE is calculated using IRD's extra-pay rules, which can look like a high rate because it's calculated as though the payment were spread across the year. At the end of the tax year (31 March), IRD does a square-up: if too much was withheld, you get a refund; if not enough, you may owe.

Tax codes you'll meet

CodeUsed forNotes
MMain job income for most peopleUse this on a main job, including part-time or casual. Does not include a student loan.
SB / S / SH / ST / SASecond job tax codes, depending on income levelUse when you have a second job. S, SH, ST or SA depend on how much total income you expect.
M SL / SB SL etc.Add 'SL' if you have a student loanYour employer deducts repayments through PAYE. 'SL' code applies for NZ-based borrowers.
CAE, EDW, NSW, WTCasual agricultural, election day workers, non-resident seasonal workers, schedular paymentsSpecial situations only.

Starting a new job: give your new employer your IRD number and tax code. If you work for two employers, one is the 'main job' (M) and the other uses a secondary code. Wrong code is the usual reason people get an unexpected tax bill. IRD has a tax code finder on ird.govt.nz.

Tax on your benefit and part-time work

  • Work and Income benefits are taxable. The Jobseeker Support figures on this site (for example $372.55 a week for a single person aged 25 or over) are after tax at the main rate; the before-tax figure is $426.12.
  • If you do part-time or casual work while on a benefit, it's taxed with your pay and also reduces your benefit. Tell Work and Income promptly.
  • Contractors and self-employed income (including gig work) isn't taxed automatically; you pay provisional tax and a tax return; consider setting aside a percentage of every payment.

If you owe IRD and can't pay

  1. Don't ignore it: penalties and interest build. Ring Inland Revenue on 0800 227 773, or message them in myIR, before the due date.
  2. Ask for an instalment arrangement. They'll ask about your income, expenses, and what you can afford.
  3. Ask about financial hardship relief: IRD can, in serious cases, write off or reduce penalties and interest or, rarely, the tax itself. Include a short explanation and evidence (redundancy letter, benefit statement).
  4. Prioritise ongoing obligations (current tax, child support) alongside the arrears so the debt doesn't grow.
  5. If you have more than one debt, a MoneyTalks mentor can negotiate on your behalf.

Email / myIR message to IRD

I've been made redundant as of [date] and I can't pay the balance of [amount] by the due date of [date]. I'd like to set up an instalment arrangement of [amount] per [week/fortnight]. I'm receiving [Jobseeker Support / no income]. If you need further information to consider financial hardship relief on penalties and interest, please tell me what you need. Name, IRD number, phone.

End of tax year and tax credits

  • Most salary and wage earners are automatically assessed. Check your myIR account in the weeks after 31 March for a refund or bill.
  • Working for Families Tax Credits may be affected by lower income. The family tax credit amounts are $151.91 a week for the first child and $123.78 for each subsequent child (check current rates and update your income estimate with IRD).
  • Keep records of anything you can claim: work-from-home expenses if self-employed, donations (receipts needed), and income from every source.

Sources

General information only. Confirm with the agency for your situation. Spotted something out of date? Email help@unemployed.nz.