How do deal with the tax on a Bonus?

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:

  1. 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.

  1. 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 screen below)

Tax Code – Annual income from all sources is likely to be:

$14,000 or less                      10.5%  – Use SB
$14,001 or $48,000                   17.5% – Use S
$48,001 to $70,000                  30.0% – Use SH
More than $70,000                   33.0 % – Use ST

    Lynley Averis

    Lynley is an MYOB Certified Consultant & has been involved in training in New Zealand since 1985. She's written various accounting & MYOB workbooks including co-authoring “Bookkeeping for Dummies”. She has consulted on all versions of MYOB Accounting, Retail and Payroll over the past 18 years and has previously worked for MYOB.She currently consults to NZ businesses on all aspects of business systems - her mission for clients is for them to spend as little time as possible doing accounting.