Myth: a pay rise into a higher bracket cuts your pay (NZ)

Last reviewed October 23, 2026

How brackets really work

Tax brackets are slices. You pay 10.5% on the first $15,600, 17.5% on the next slice, 30% from $53,500, 33% from $78,100 and 39% from $180,000. Here’s a $79,000 salary, cut into its slices:

Income tax on a $79,000 salary 2026–27 rates, tax code M

Slice of income	Rate	Amount due
First $15,600	10.5%	$1,638.00
Next $37,900	17.5%	$6,632.50
Next $24,600	30%	$7,380.00
The last $900	33%	$297.00
Income tax for the year		$15,947.50

Only the last $900 is taxed at 33%. Across the whole salary, income tax is 20.2%. The ACC earners' levy of 1.75% comes on top.

Example: a pay rise from $78,000 to $79,000

$100 is taxed at 30%: $30
$900 is taxed at 33%: $297
ACC earners’ levy at 1.75%: $17.50

You keep about $655 of the $1,000, before any KiwiSaver or student loan deductions. Your pay below $78,100 is taxed exactly as before.

Marginal and average rates

Your marginal rate is the rate on your next dollar: on $79,000, that’s 33% income tax plus the 1.75% ACC levy. Your average rate is your tax as a share of all your income, which is much lower: about 20% income tax on $79,000. Nobody in New Zealand pays 39% on all their income.

Why the myth sticks

More tax comes out of each pay after a rise, and the step up in rate is noticeable. But your total take-home pay still goes up. The PAYE calculator shows how much of every extra $100 you keep.

What takes a bigger bite

These reduce what you keep from a pay rise, but don’t leave you worse off overall:

Working for Families tax credits shrink as family income rises.
The independent earner tax credit falls by 13 cents per dollar between $66,000 and $70,000. With tax and the ACC levy, you keep about 55 cents of each extra dollar there, or about 43 cents with a student loan.
Student loan repayments take 12% of income above the repayment threshold.

The one limit to watch

The KiwiSaver government contribution is up to $260.72 a year, and it isn’t paid at all if your income is over $180,000. Earning a little over $180,000 instead of a little under can cost you the whole amount. Above $180,000 you keep 61 cents of each extra dollar, so a rise needs to take you more than about $430 over the limit to leave you ahead.

A few cards and payments also stop at an income limit, such as the Community Services Card, so check those if you’re close to one.

Frequently asked questions

Will a pay rise into a higher tax bracket cut my take-home pay?

No. Only the part of your income above the bracket threshold is taxed at the higher rate. The rest of your pay is taxed exactly as before, so you always keep most of a rise.

What is my marginal tax rate?

The rate on your next dollar of income. On $79,000 it’s 33% income tax plus the 1.75% ACC earners’ levy, so 34.75 cents of each extra dollar, before KiwiSaver and any student loan.

What’s the difference between marginal and average tax rates?

Your marginal rate is the rate on the last dollar; your average rate is the tax as a share of all your income. On $79,000, the top slice is taxed at 33% but income tax is about 20% of the whole salary.

Can a pay rise ever leave me worse off?

Almost never. The one case to watch is the KiwiSaver government contribution, which stops if your income goes over $180,000. A small rise that takes you just over could cost up to $260.72 of it.

Why did more tax come out than I expected after my rise?

The extra pay is taxed at your top rate, plus the ACC levy, and 12% student loan repayments if you have a loan. If you get the IETC, it also shrinks between $66,000 and $70,000.