Bonuses
Bonuses paid to staff are taxable. How this is done depends on the type of bonus.
Taxing lump sum payments
To calculate tax, lump sums are added to the total salary for the year. They are usually liable for ACC earners' levy. Employees can elect to pay tax on a lump sum at a higher rate.
Taxing regular bonuses
Bonuses paid regularly are taxed by adding the bonus amount to the employee's gross wages for the pay periods in which they were earned.
Taxing redundancy and retiring payments
Redundancy and retiring payment are taxed at lump sum rates, but are not liable for ACC earners' levy.
Taxing restrictive covenant and exit inducement payments
Restrictive covenant and exit inducement payments are classed as source deduction payments, so PAYE must be deducted at the lump sum rate.
Date published: 16 Sep 2004
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