Two people can both say "I'm on 33%" and pay very different amounts of tax. That is because New Zealand taxes income in bands: each slice of your income has its own rate. Your marginal rate is the rate on the top slice, and your effective rate is what all your tax works out to across your whole income. Knowing the difference helps you judge a pay rise, a side job or a savings decision properly.
Two rates, two different questions
Each rate answers a different question.
- Marginal rate: "If I earn one more dollar, how much of it goes in tax?" It is the rate for the band your income currently ends in.
- Effective rate: "Of everything I earned this year, what share went in tax?" It is your total income tax divided by your taxable income.
For the 2026/27 tax year (1 April 2026 to 31 March 2027), the bands are:
| Slice of taxable income, 2026/27 | Rate on that slice |
|---|---|
| $0 to $15,600 | 10.5% |
| $15,601 to $53,500 | 17.5% |
| $53,501 to $78,100 | 30% |
| $78,101 to $180,000 | 33% |
| $180,001 and over | 39% |
Everyone with income pays 10.5% on their first $15,600, whether they earn $16,000 or $1 million. The higher rates only reach the slices of income that sit above each threshold. Because the lower slices are always taxed lightly, your effective rate is always below your marginal rate once your income passes $15,600.
Working it through band by band
Take Rawiri, who earns $100,000 in 2026/27. His marginal rate is 33%, but only part of his income is taxed at 33%.
| Rawiri's income, 2026/27 | Rate | Tax on the slice |
|---|---|---|
| First $15,600 | 10.5% | $1,638.00 |
| Next $37,900 (to $53,500) | 17.5% | $6,632.50 |
| Next $24,600 (to $78,100) | 30% | $7,380.00 |
| Last $21,900 (to $100,000) | 33% | $7,227.00 |
| Total | $22,877.50 |
His total income tax is $22,877.50, which is an effective rate of 22.88%. So the honest summary is: Rawiri's marginal rate is 33%, but he pays a little under 23 cents in each dollar overall.
The marginal rate is the one that matters for his next decision. If he takes on $1,000 of extra work, $330 of it goes in income tax. The effective rate is the one that describes his year as a whole.
Effective and marginal rates at different incomes
The table shows income tax, effective rate and marginal rate at a range of incomes for 2026/27. It is income tax only: no ACC levy, student loan, KiwiSaver or tax credits.
| Taxable income, 2026/27 | Income tax | Effective rate | Marginal rate |
|---|---|---|---|
| $15,600 | $1,638.00 | 10.50% | 10.5% |
| $20,000 | $2,408.00 | 12.04% | 17.5% |
| $30,000 | $4,158.00 | 13.86% | 17.5% |
| $40,000 | $5,908.00 | 14.77% | 17.5% |
| $53,500 | $8,270.50 | 15.46% | 17.5% |
| $60,000 | $10,220.50 | 17.03% | 30% |
| $70,000 | $13,220.50 | 18.89% | 30% |
| $78,100 | $15,650.50 | 20.04% | 30% |
| $90,000 | $19,577.50 | 21.75% | 33% |
| $100,000 | $22,877.50 | 22.88% | 33% |
| $120,000 | $29,477.50 | 24.56% | 33% |
| $150,000 | $39,377.50 | 26.25% | 33% |
| $180,000 | $49,277.50 | 27.38% | 33% |
| $200,000 | $57,077.50 | 28.54% | 39% |
| $250,000 | $76,577.50 | 30.63% | 39% |
| $300,000 | $96,077.50 | 32.03% | 39% |
Two patterns stand out. The effective rate climbs smoothly; it never jumps. And it never catches up with the marginal rate. Even at $300,000 the effective rate is about 32%, because the first $180,000 is still taxed at the lower rates.
The same table applies to 2025/26, which used identical bands. For 2024/25 the composite rates apply instead; see NZ income tax rates.
Your effective rate after credits and the ACC levy
The table above is income tax on its own. Two things can move your real effective rate in opposite directions.
Tax credits pull it down. If you qualify for the independent earner tax credit for the whole of 2026/27, $520 comes off your tax. That makes a noticeable difference at lower incomes:
| Income, 2026/27, IETC all year | Income tax after the credit | Effective rate |
|---|---|---|
| $30,000 | $3,638.00 | 12.13% |
| $45,000 | $6,263.00 | 13.92% |
| $60,000 | $9,700.50 | 16.17% |
The ACC earners' levy pushes it up, if you think of everything deducted from your pay. On a $60,000 salary in 2026/27, income tax of $10,220.50 plus the levy of $1,050.00 comes to $11,270.50, or 18.78% of your pay. On $100,000 the total is $24,627.50, or 24.63%. The levy is not income tax and is not part of your tax assessment, but it does come out of every payslip, so it belongs in a take-home budget.
When people compare tax rates between countries or with friends, they often mix these measures. Be clear which one you mean: income tax only, tax after credits, or everything taken from your pay.
Why a higher bracket never taxes all your income at the higher rate
A common worry goes like this: "If my pay goes over $78,100, I'll move to 33% and end up worse off." It is not how the system works. Crossing a threshold changes the rate on the dollars above it, and only those.
Look at the threshold itself in 2026/27. Tax on $78,100 is $15,650.50. Tax on $78,101 is $15,650.83. The extra dollar costs 33 cents, and the effective rate stays at 20.04%. Nothing about the first $78,100 changes.
Now a realistic pay rise. Mei goes from $75,000 to $80,000 in 2026/27.
| Mei, 2026/27 | $75,000 | $80,000 |
|---|---|---|
| Income tax | $14,720.50 | $16,277.50 |
| Effective rate | 19.63% | 20.35% |
| Marginal rate | 30% | 33% |
Her extra $5,000 attracts $1,557.00 more income tax: $3,100 of it is still in the 30% band and only the last $1,900 is taxed at 33%. Add the ACC earners' levy of $87.50 on the extra pay, and she keeps $3,355.50 of the $5,000. More pay always leaves you with more money from income tax alone. The places where the sums get tighter are covered next.
The same holds at every threshold. Here is what the next $1,000 of income costs in income tax at a few starting points in 2026/27:
| Starting income, 2026/27 | Tax on the next $1,000 | You keep, before levy and deductions |
|---|---|---|
| $50,000 | $175.00 | $825.00 |
| $60,000 | $300.00 | $700.00 |
| $90,000 | $330.00 | $670.00 |
| $190,000 | $390.00 | $610.00 |
Even at the very top, crossing $180,000 only changes the rate on the dollars above it. Someone on $181,000 pays $390.00 more than someone on $180,000, and their effective rate is 27.44%, a long way short of 39%. The idea that a raise can push you "into a higher bracket" and cost you money overall comes from imagining the whole income being re-taxed. New Zealand's system has never worked that way, and nothing in the 2026/27 rules changes that.
What else changes your real marginal rate
The tax bands are not the only thing that takes a share of an extra dollar. If you are an employee, these can push your real marginal rate above the band rate:
- ACC earners' levy. In 2026/27 it is 1.75% of your pay up to $156,641. Inland Revenue's employer guide shows the combined PAYE rates as 12.25%, 19.25%, 31.75% and 34.75% (up to $156,641), then 33% from $156,642 to $180,000 and 39% above that. Oddly, the combined rate dips once you pass the levy cap.
- Independent earner tax credit. Between $66,000 and $70,000 the credit shrinks by 13 cents for each dollar. In 2026/27, the step from $66,000 to $67,000 adds $430.00 to your tax after the credit, an extra 13 percentage points on top of the 30% band. See the IETC guide.
- Student loan. Repayments are 12% of income over the $24,128 annual threshold in 2026/27, so a borrower's extra dollar loses 12 cents more.
- Working for Families and other income-tested support also reduce as income rises. Those rules are outside this site, but they belong in the same sum.
Put together, an employee on code ME SL who goes from $67,000 to $68,000 in 2026/27 keeps $432.80 of the extra $1,000 after income tax, the levy, the lost credit and the student loan. More than half of it, $567.20, goes, even though their tax bracket is 30%.
Which rate to use for which decision
Use your marginal rate when you are deciding about extra income or a deduction at the edge of your earnings:
- A pay rise, extra shifts or overtime.
- Side income from a hobby or a second job; see tax on side income.
- Choosing your RWT rate on interest. IRD says the rate should match your income tax rate, which means the marginal rate for your total income. In 2026/27 the RWT rates mirror the bands: 10.5%, 17.5%, 30%, 33% and 39%. More in interest and RWT.
- Thinking about how much of a business expense or rental deduction you get back in tax.
Use your effective rate when you are looking at the whole year:
- Comparing your tax with someone else's, or with last year.
- Budgeting from a gross salary to what you will actually receive.
- Understanding why your tax bill feels lower than "your bracket" suggests.
One case does not follow either rule cleanly. The prescribed investor rate for PIE funds, including KiwiSaver, has only three rates for residents (10.5%, 17.5% and 28%) and is based on your income in the previous two years, so it is set by its own test rather than your current marginal rate. See PIR explained.
To see both rates for your own income, enter it in the tax calculator; it shows your effective and marginal rate alongside the tax for the year you choose.
Questions people ask
What is my marginal tax rate in NZ?
It is the rate for the band your taxable income ends in. For 2026/27: 10.5% up to $15,600, 17.5% to $53,500, 30% to $78,100, 33% to $180,000 and 39% above.
Will a pay rise into a higher tax bracket leave me worse off?
No. Only the dollars above the threshold are taxed at the higher rate. In 2026/27 a rise from $75,000 to $80,000 adds $1,557.00 of income tax, leaving most of the rise with you.
What is the effective tax rate on $100,000 in NZ?
In 2026/27, income tax on $100,000 is $22,877.50, an effective rate of 22.88%, even though the marginal rate is 33%.
Does the ACC levy change my marginal rate?
For employees it adds 1.75% in 2026/27 on pay up to $156,641, so the combined PAYE rate in the 33% band is 34.75% until the levy cap is reached.
Sources
- IRD: Tax rates for individuals
- IRD: IR335 Employer's guide (September 2026)
- IRD: Payroll calculations and business rules specification 2026/27
- IRD: Using the right RWT tax rate
- IRD: Independent earner tax credit (IETC)
Figures for 2026/27 unless stated. A guide, not tax advice. Spotted something out of date? Email crucibleinvestmentsltd@gmail.com.