In a move aimed at providing tax relief for individuals and families, New Zealand introduced significant updates to its personal tax brackets as part of Budget 2024, announced on 30 May 2024.

Those new thresholds now apply for the full 2025/2026 tax year (1 April 2025 to 31 March 2026), and there were no further changes to the personal income tax rates in Budget 2025.

These changes, which first took effect part-way through the 2024/2025 year from 31 July 2024, encompass increased income thresholds, enhancements to tax credits, and adjustments in family support measures. From 1 April 2025 onwards, the updated thresholds apply for the full year, so they are the only brackets you use for the 2025/2026 tax return.

Here’s a breakdown of what this means:

• Rationale for Tax Changes
• Individual Tax Rates NZ 2025/26
• Tax Codes Explained
• Marginal Tax Rate Explained
• Enhancements to Tax Credits
• Implications for Taxpayers and Employers
• Other Considerations
• Changes in Family Support Measures
• Tax Changes NZ – For Employers
• Other Tax Adjustments
• Business Tax Settings and Investment Incentives
• Discussion on Capital Gains and Wealth Taxes
• Funding for Tax Relief

Rationale for Tax Changes

The 2024 tax changes address wage growth since 2010, which has led to more individuals moving into higher tax brackets. By adjusting thresholds, the government aims to reduce the tax burden on middle-income earners and restore fairness in the tax system.

For 2025/2026, there are no additional personal tax bracket changes – the focus is on the full-year impact of the thresholds introduced in 2024.

Updated Personal Income Tax Thresholds (2025/2026)

The revised tax brackets are structured to better align with current economic realities and inflationary pressures. For the tax year 1 April 2025 to 31 March 2026, the personal income tax rates are:

Tax Rates NZ 2025/2026 – For Each Dollar of Income:

Background – Transitional Year 2024/2025

For context, composite thresholds applied between 1 April 2024 and 31 March 2025 because the changes took effect part-way through that tax year. That transitional complexity does not apply for 2025/2026 – you simply use the rates above for the entire year.

Tax Codes Explained

Understanding tax codes is essential for determining correct deductions. For example:

• M: Main income, with standard deductions.
• ME: Main income but eligible for Independent Earner Tax Credit (IETC).
• SB: Secondary income, with different withholding rates.

Taxpayers can use the Inland Revenue tax code finder to ensure the correct code is used and to avoid unexpected end-of-year tax bills..

From 31 July 2024, the extended IETC (see below) means some people who were not previously eligible may now use an ME-type code when this is their main source of income.

Marginal Tax Rate Explained

New Zealand’s tax system is progressive, meaning income is taxed in tiers. Each portion of your income is taxed at the applicable rate for that bracket, not at a single flat rate on your whole income. 

For example, for the 2025/2026 tax year:

• The first $15,600 is taxed at 10.5%
• Income between $15,601 and $53,500 is taxed at 17.5%
• Income between $53,501 and $78,100 is taxed at 30%
• Income between $78,101 and $180,000 is taxed at 33%
• Any income over $180,000 is taxed at 39%

Example Calculation for 2025/2026

Example: An individual earning $80,000 annually in the 2025/2026 year

• $15,600 × 10.5% = $1,638
• $37,900 (from $15,601 to $53,500) × 17.5% = $6,632.50
• $24,600 (from $53,501 to $78,100) × 30% = $7,380
• $1,900 (from $78,101 to $80,000) × 33% = $627
• Total tax owed: $16,277.50

Enhancements to Tax Credits

Budget 2024 introduced several changes to key personal and family-based tax credits. These remain relevant for the 2025/2026 tax year, with some subsequent updates to FamilyBoost.

Independent Earner Tax Credit (IETC):

From 31 July 2024, eligibility for the IETC was extended:

• Available to individuals earning between $24,000 and $70,000 per year
• Provides up to $20 per fortnight (maximum $520 per year)
• Designed for individuals not receiving Working for Families, a main benefit or NZ Super

This extended eligibility continues to apply for the 2025/2026 year.

FamilyBoost Initiative

FamilyBoost is a childcare payment that helps with early childhood education (ECE) costs. Initially, from 1 July 2024, households could receive up to 25% of eligible ECE fees, capped at $150 per fortnight ($975 per quarter).

Since then, FamilyBoost has been enhanced:

• From 2025, eligible households can now claim up to 40% of ECE costs, with a higher maximum of $1,560 per quarter (equivalent to $120 per week), depending on income and fees paid.
• Payments are still made quarterly via myIR, and the scheme continues to abate as household income rises, with no entitlement once income exceeds $180,000 per annum.

Household Benefit Examples

Budget 2024 modelling provided examples of how much families could gain from the combined changes to personal income tax thresholds, Working for Families and FamilyBoost.

• Couple with four children: Gains up to $7,042 annually from a mix of PIT, IWTC and FamilyBoost.
• Sole parent earning $80,000: Gains up to $2,343–$5,593 annually depending on family circumstances, from PIT reductions, IWTC and FamilyBoost.

These figures were based on the original 2024 settings (including a lower FamilyBoost cap). With later enhancements to FamilyBoost, actual entitlements for 2025/2026 may be higher for some households, depending on their income and ECE costs.

Tax Changes NZ – Implications for Taxpayers and Employers

For taxpayers, the new tax rates mean:

• Higher net take-home pay compared with the pre-July 2024 thresholds, particularly for incomes between $14,000 and $78,100.
• The impact of the changes is now fully “baked in” for the 2025/2026 year, so there is no mid-year “blending” of rates to worry about.

For employers:

• Payroll systems must use the “from 1 April 2025” tax tables for all 2025/2026 pay periods.
• If any errors occur during the year, they will be corrected at the annual reconciliation (end-of-year square-up).

Other Considerations

Secondary Tax Codes:

Those using secondary tax codes (for second jobs or extra income) should review:

• Their expected total income for 2025/2026
• Whether their secondary code still makes sense, given the extended IETC range and new thresholds

Using the wrong code can still create under- or over-payments, particularly for those close to bracket boundaries.

Resident Withholding Tax (RWT):

Investors should confirm that their RWT rate aligns with their marginal tax rate, especially if their income has moved them into a higher or lower bracket post-changes. RWT rates have been updated to match the new personal tax thresholds.

Provisional Tax:

Taxpayers paying provisional tax should consult with their tax agents to discuss potential adjustments.

Tailored Tax Codes:

People who use customised (tailored) tax codes will receive updated certificates that reflect the new thresholds and IETC eligibility. These need to be provided to employers so that PAYE is calculated correctly for the 2025/2026 year.

Changes in Family Support Measures

From 31 July 2024, several key family support measures were strengthened, and these remain relevant for 2025/2026:

Minimum Family Tax Credit (MFTC):

• The MFTC threshold was increased to ensure recipients benefit fully from the personal tax threshold changes and the increase to the In-Work Tax Credit.
• For 2025/2026, the current MFTC threshold is being held at its existing level for one year, following advice that it is already above the level needed to meet its policy objective.

In-Work Tax Credit (IWTC):

• From 31 July 2024, the IWTC increased by up to $50 per fortnight for eligible working families.
• That higher level continues to apply in 2025/2026.

Paid Parental Leave (PPL):

Updated tax thresholds automatically flow through to paid parental leave calculations, ensuring entitlements reflect the changed personal tax settings.

Tax Changes NZ – For Employers

Employers need to be aware of a wider set of changes that interact with PAYE:

• PAYE tables updated from 1 April 2025 to reflect new thresholds
• ESCT and FBT thresholds have also been adjusted to stay aligned with the personal tax bands from 1 April 2025
• Minimum wage has increased, and the ACC earners’ levy and its threshold have changed, which together affect overall payroll costs

Manual filers must incorporate the revised tax tables and contribution thresholds into their calculations to remain compliant.

Other Tax Adjustments (Including Interest on Tax)

Changes to tax rules include:

• Fringe Benefit Tax (FBT) attribution and thresholds
• Employer Superannuation Contribution Tax (ESCT) thresholds and rates
• Portfolio Investment Entity (PIE) rates, aligned with the updated personal tax bands from 1 April 2025
• Effective 16 January 2025, Inland Revenue will adjust the interest rates applied to tax overpayments and underpayments. These changes affect all taxpayers, including individuals, sole traders, and businesses. You can read full details on the implications of this change in our article New Zealand Tax Interest Rate Changes: What You Need to Know

Business Tax Settings and Investment Incentives

Budget 2024 introduced no new taxes on businesses and focused primarily on personal tax relief. That position has now evolved:

• Company tax rates remain unchanged, and there have been no new broad-based business tax increases targeting ordinary business income.
• Budget 2025 introduced “Investment Boost” – a new tax incentive allowing an immediate 20% deduction for eligible new productive business assets acquired from 22 May 2025, with the balance depreciated under normal rules.

Discussion on Capital Gains and Wealth Taxes

Although no comprehensive capital gains tax (CGT) or net wealth tax has been introduced, public debate continues.

The Tax Working Group previously recommended broader capital income taxation to enhance fairness, but these proposals remain politically contentious and have not been implemented.

As at the 2025/2026 tax year, New Zealand still has no general CGT or wealth tax.

Funding for Tax Reliefs

The $3.7 billion annual cost of the 2024 personal tax relief package (including threshold changes, IETC extension, IWTC increase and FamilyBoost) is funded through:

• Baseline savings and programme closures
• Climate-related funding reallocations
• Changes to depreciation on commercial buildings
• Taxing online casino operators
• Additional compliance funding for Inland Revenue

This approach was designed so that the 2024 tax relief would not require additional borrowing or add to inflation pressures. Subsequent Budgets (including Budget 2025) have continued the theme of reprioritising spending and revenue measures rather than introducing new broad-based personal tax hikes.

NZ Tax Changes

The adjustments to New Zealand’s tax brackets and credits now fully in place for the 2025/2026 tax year are intended to create a fairer and more supportive environment for individuals and families.

By understanding these changes and taking proactive steps to adjust financial strategies where necessary, taxpayers can:

• Check that PAYE and provisional tax are set correctly
• Make sure tax codes and RWT rates match their income
• Review eligibility for IETC, Working for Families, FamilyBoost and other credits
• Plan around UOMI and, for businesses, Investment Boost and other incentives

Stay informed, stay prepared, and leverage these updates to optimise your financial position in New Zealand.

If you’d like professional advice on how these 2025/2026 tax settings affect you or your business, please contact us to request an appointment and we can work through your position in detail.