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Income Tax Act 2007

General collection rules - Employment-related taxes - Adjustments for certain PAYE income payments

RD 13: Advance payments

You could also call this:

“How employers handle tax on advance payments of salary, wages, or holiday pay”

If you get an advance payment of your salary or wages, or if you get holiday pay before you take your holiday while still working, your employer has two options for handling the tax on this money.

Your employer can treat the money as extra pay. This means they’ll take out tax as if it were a bonus or special payment.

Or, your employer can spread the money out over the pay periods it covers. If they do this, they’ll follow these steps:

First, they’ll divide the money into portions for each pay period it covers, based on how many hours you usually work.

Then, they’ll work out the tax for each portion as if it were your only pay for that period.

After that, they’ll add up all the tax amounts for each portion.

When you get your regular pay for those periods later, your employer will do a special calculation. They’ll add your regular pay to the portion of the advance or holiday pay for that period. They’ll work out the tax on this total as if it were one payment. Then they’ll take away the tax they already worked out for the advance or holiday pay portion.

This helps make sure you pay the right amount of tax, even when you get money in advance.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1519968.

Topics:
Money and consumer rights > Taxes
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Part R General collection rules
Employment-related taxes: Adjustments for certain PAYE income payments

RD 13Advance payments

  1. This section applies when an employee receives from their employer—

  2. an advance payment of salary or wages referred to in section RA 5(1)(a) and (c) (Tax obligations for employment-related taxes):
    1. an amount of holiday pay that is paid—
      1. in a lump sum before the employee takes their holiday; and
        1. when the employee’s employment is continuing.

        2. The employer may choose to treat the amount as—

        3. an extra pay; or
          1. a lump sum paid and spread over the pay period or periods to which it relates.

            1. Subsections (4) and (5) apply when an employer chooses under subsection (2)(b) to treat the amount as a lump sum.

            2. The amount of tax for the lump sum payment is determined by—

            3. apportioning the lump sum to the pay period or pay periods to which it relates based on the employee’s usual hours of work; and
              1. calculating the amount of tax for each portion of the lump sum, treating the portion as if it were the only payment of salary or wages paid by the employer to the employee for the particular pay period; and
                1. adding together the amounts of tax for each portion.

                  1. The amount of tax for a payment of salary or wages for a pay period referred to in subsection (4)(a) that is made after the payment of the lump sum is found by—

                  2. adding together—
                    1. the amount of the payment of salary or wages for the pay period; and
                      1. the portion of the lump sum that relates to the pay period as determined under subsection (4)(a); and
                      2. calculating the amount of tax that must be withheld for the total amount referred to in paragraph (a), treating that amount as if it were a single payment of salary or wages paid by the employer to the employee for the pay period; and
                        1. subtracting the amount of tax for the portion of the lump sum that relates to the pay period as described in subsection (4)(b).

                          Notes
                          • Section RD 13: replaced, on , by section 202 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).