How Much Tax Should I Set Aside in NZ?
A practical guide to how much tax to set aside in New Zealand, with income-based percentages, GST separation, and real sole trader examples.
Current for the 2026–27 tax year | Rates confirmed against IRD
This is the question every new freelancer, tradie, and sole trader asks — usually after getting their first big tax bill and realising they've already spent the money.
The short answer: set aside 20–33% of every payment you receive, depending on how much you earn. The right number depends on your income level, whether you're GST-registered, and whether you have other income on top.
Why you need to save for tax at all
When you're an employee, your employer takes your tax out before you see your pay. As a sole trader, contractor, or freelancer, nobody does that. Every dollar that lands in your account looks like your money — but a chunk of it belongs to IRD.
The tax doesn't come due the moment you earn it. It comes due months later, sometimes all at once. That gap is where people get into trouble. By the time the bill arrives, the money is gone.
Treat tax as an expense that comes out of every payment, not a bill you deal with later.
Meet Priya — a freelance designer in Wellington
Priya left her agency job and went freelance. Her first year she earned $65,000 from clients. She didn't save for tax because she wasn't sure how much to put aside. At the end of the year she owed $12,020 in income tax plus $1,138 in ACC. She had to borrow from family to pay it.
Her second year she set aside 25% of every invoice payment. She earned $72,000, saved $18,000 throughout the year, and owed $14,018 in tax and ACC combined. She had $3,982 left over after paying IRD — which she put toward her third year's first provisional tax instalment.
Same income level. Completely different experience.
How much to set aside by income
These figures cover income tax plus ACC for a sole trader with no other income sources, based on 2026–27 tax brackets.
| Taxable profit | Set aside |
|---|---|
| Up to $20,000 | 15–18% |
| $20,001 – $45,000 | 20–22% |
| $45,001 – $70,000 | 23–26% |
| $70,001 – $100,000 | 27–30% |
| Over $100,000 | 30–33% |
These are starting points, not exact figures. Your actual amount depends on your expenses, deductions, and ACC work levy classification. Round up rather than down — it is always better to have money left over than come up short.
What you are actually saving for
Most people only think about income tax when they ask this question. But there are three things that hit at tax time as a self-employed person:
1. Income tax
Calculated on your taxable profit using the personal tax brackets — 10.5% on the first $15,600, 17.5% up to $53,500, 30% up to $78,100, 33% up to $180,000, and 39% above that.
2. ACC levies
You pay the earner's levy (1.75% from 1 April 2026) on income up to $156,641. You also pay a work levy on top — the rate depends on your industry. Physical work like building and trades costs more than desk work. Budget 2.0–2.5% combined for most sole traders as a planning estimate.
3. Provisional tax instalments
Once your tax bill exceeds $5,000, IRD requires you to pay in three instalments during the year rather than one lump sum at the end. If you're already saving throughout the year, provisional tax is not an extra cost — it's just when you pay what you've already saved. The problem only comes if you haven't been saving.
Real numbers — what Priya actually owes
Priya earns $72,000 taxable profit in year two.
Income tax:
- First $15,600 at 10.5% = $1,638
- $15,601 to $53,500 at 17.5% = $6,633
- $53,501 to $72,000 at 30% = $5,550
- Total income tax = $13,821
ACC (estimate at 2.0%):
- $72,000 x 2.0% = $1,440
Total = $15,261
As a percentage of her $72,000 profit: 21.2%
Priya set aside 25%. She saved $18,000 and owed $15,261. That left her $2,739 ahead — which she kept in her tax account for next year.
GST is separate — don't mix it up
If your annual turnover is over $60,000 you must register for GST. Once registered, you add 15% GST on top of your invoices and pay that to IRD every two months.
GST is not your money and it is not part of your income tax savings. Keep it completely separate.
Priya invoices $100 + $15 GST = $115. The $115 goes into her account but she immediately moves $15 to a separate GST account. It was never hers.
If you mix GST with your income, your savings percentage will be wrong and you'll end up short on GST returns or short on income tax — or both.
Two separate savings accounts — one for income tax and ACC, one for GST. Keep them apart from day one.
The system that works
Step 1 — open a dedicated tax savings account
Separate from your everyday business account. Call it "Tax" so it's obvious. Don't use it for anything else.
Step 2 — transfer a percentage of every payment received
Do it the same day the money lands. Not at the end of the month. Not when you remember. The same day.
Step 3 — if GST-registered, move GST first
Take out the GST portion straight away and put it in the separate GST account. Then calculate your income tax savings percentage on what's left.
Step 4 — leave it alone
The tax account is not a float. It is not an emergency fund. It is IRD's money sitting in your account until they ask for it.
Work out your own percentage
Take your expected annual profit. Calculate the income tax using the brackets above. Add 2.0–2.5% for ACC. Divide the total by your expected profit. That is your personal savings percentage.
Sam earns $55,000 profit:
- Income tax = $1,638 + $6,633 + $450 = $8,721
- ACC at 2.0% = $1,100
- Total = $9,821
- As a percentage of $55,000 = 17.9%
Sam should set aside at least 18–20%.
Jordan earns $95,000 profit:
- Income tax = $1,638 + $6,633 + $7,380 + $5,577 = $21,228
- ACC at 2.0% = $1,900
- Total = $23,128
- As a percentage of $95,000 = 24.3%
Jordan should set aside at least 25–27%.
Use the TaxPop Self-Employed Tax Calculator to put in your own numbers — it estimates income tax, ACC, and take-home in one go.
Your first year
In your first year as a sole trader your tax bill probably won't trigger provisional tax (that kicks in once you owe more than $5,000). You'll pay the whole bill in one go. IRD's due date for first-year sole traders is 7 February the year after the tax year ends — or 7 April if you use a tax agent.
That means the bill can arrive 10–15 months after you started earning. A long time to wait — and a long time to accidentally spend the money.
One thing worth knowing: IRD offers an early payment discount if you make voluntary payments during your first year before the tax is due. The discount rate for the 2027 income year is 4.25% on those voluntary payments. Not huge, but it rewards exactly the behaviour this post is encouraging — saving and paying early.
Start saving from your very first invoice. Even if you end up overpaying slightly, you get that money back as a refund.
What if you also have a salary?
Some people run a side business while still employed. Your employer handles PAYE on your salary. But your self-employment profit sits on top of that salary, and together they push your total income higher — potentially into a higher tax bracket.
If you earn $60,000 from your job and $30,000 profit from your business, IRD taxes you on $90,000 total. The tax on that extra $30,000 is at 33% — not starting from zero. Your employer's PAYE didn't account for this.
Save a higher percentage of your self-employment income in this situation — closer to 30–33%.
Set-aside rates at a glance
| Situation | Suggested set-aside |
|---|---|
| First year, profit under $30,000 | 18–20% |
| Established sole trader, profit $30,000–$70,000 | 22–26% |
| Established sole trader, profit $70,000–$120,000 | 28–32% |
| High earner, profit over $120,000 | 32–35% |
| Side business on top of a salary | 30–33% of business income |
When in doubt, round up. Setting aside too much means a small amount of money sitting idle until IRD confirms you're square. Setting aside too little means a tax bill you can't pay, late penalties, and use-of-money interest at 8.97% per year.
Common questions
I missed saving in my first year — what do I do?
Call IRD before your tax bill is due. They are generally willing to set up a payment plan. The interest and penalties on an arranged plan are much more manageable than ignoring the bill.
Should I save from gross income or net profit?
Save from your net profit — what's left after business expenses. If you invoice $10,000 and spend $2,000 on tools and materials, your taxable profit is $8,000. Save your percentage from $8,000.
Can I use KiwiSaver to pay my tax bill?
No. KiwiSaver is separate from income tax. You cannot use your KiwiSaver balance to pay an IRD bill.
What if my income varies a lot month to month?
Use the same percentage on every payment regardless of the amount. If you earn $500 one month and $8,000 the next, the percentage stays the same. Your savings scale automatically with your income.
Run your own numbers
Put your own income and expenses into the TaxPop Sole Trader & Self-Employed Tax Calculator — it breaks down your estimated income tax, ACC, and take-home so you can see exactly what percentage to save.
Other tools:
- Provisional Tax Calculator — work out your three instalment amounts
- Income Tax Calculator — check the tax on a specific profit figure
- GST Calculator — keep your GST position separate
Tax rates and thresholds in this guide are sourced from Inland Revenue (IRD) and are current for the 2026–27 tax year. ACC estimates are for planning purposes only. This guide is general information only and is not tax or financial advice. For advice specific to your situation, speak to a registered NZ tax professional.