How to calculate tax when self employed and employed

[aaroncito]

I’m trying to estimate my tax (I have used the IRD’s calculator) but that only calculates one income stream or the other not both. How does income coming in as self employed and as an employee affect the tax brackets for each calculation?

E.g. I earn 100,000 self employed (I wish) which puts my tax at 23,920$ , do I simply ignore my paye tax as that’s calculated and removed by my employer automatically, or do I need to factor it in?

 

[pehan1807]

@aaroncito Try the HNRY calculator
https://hnry.co.nz/tax-resources/the-nz-self-employed-tax-calculator/

Or just sum your self employed income and PAYE income, remove expenses and use that number in the IRD calculator.

 

[lisas]

@aaroncito Accountant here

What you need to do is first look at your salary and which tax bracket this fits in.

• Up to $14,000 - 10.5%
• Over $14,000 and up to $48,000 - 17.5%
• Over $48,000 and up to $70,000 - 30%
• Over $70,000 and up to $180,000 - 33%
• Remaining income over $180,000 - 39%

Examples

• If your salary is $60k and your self employment income is $40k your total income is $100k. The first $10k of your self employment income will be at 30%, and the last $30k will be at 33%
• If your salary is $80k and your self employment income is $40k your total income is $120k. All of your self employment income will be at33%

 

[cbonetwobe]

@aaroncito It's a bit more complicated than that. The paye income has tax d ducted but it also effectively puts you at a higher starting point for marginal tax brackets.

What I'd do is go to paye.net.nz and enter your paye salary. It should correctly calculate your tax. Then take a guess at your income including self employed. Enter this number into paye.net.nz. write down how much tax you owe. (Remember ACC too)

Subtract those two numbers. That gives you an estimate of your total tax owed as self employed. Next divide by your estimate. That gives you your effective overall tax rate on your self employed income.

Let's say it's 28%

Now every time you earn a dollar from self employed work, set aside $0.28 for tax. This won't be perfect, but it should be very close.