How to deal with the tax on a staff bonus payment
How do I pay staff a bonus and deal with the tax?
Bonuses are commonly used as staff incentives; however there is often confusion about the tax on bonuses paid.
There are two types of bonuses:
- Regular bonuses
- Gratuitous or “one-off” bonuses
Regular bonuses
Ones that are paid periodically and should be included in the employee’s gross earnings.
These must be set up as Gross Earnings pay codes. For the tax on a regular bonus, refer to the IRD website or your tax tables.
Note: All amounts paid to employees as part of their agreements or paid periodically must be included in their Annual Leave and Holiday Pay calculations.
Gratuitous or “one-off” bonuses
These amounts would not be included in the employee’s Annual Leave and Holiday Pay calculations. These bonuses need to be set up as a Taxable Allowance pay code. To tax the bonus correctly, use the Tax Override button, enter the bonus amount and then choose the Tax code appropriate for that employee (see below)
Tax Code – Annual income from all sources is likely to be:
$14,000 or less 10.5% – Use SB
$14,001 to $48,000 17.5% – Use S
$48,001 to $70,000 30.0% – Use SH
More than $70,000 33.0 % – Use ST
