A plain-language guide to understanding and calculating Pay-As-You-Earn (PAYE) income tax in 2026.
PAYE stands for . It is income tax that your employer takes out of your pay you receive it, and sends to the government on your behalf.
Not all of your pay is taxed. The government gives you a -- an amount you can earn each period without paying any tax. Only the pay above that tax-free portion is taxed.
PAYE uses three important numbers. They depend on how often you are paid.
Here is what each one means:
- -- the portion of your pay that is not taxed at all. If your total pay is at or below this number, you pay zero PAYE.
- -- the maximum amount of taxable pay that is taxed at the lower 25% rate. Anything above this is taxed at 35%.
- -- if your total pay exceeds this number, a special rule changes how your tax-free amount is calculated (explained later).
There are two tax rates:
On the first portion of your taxable pay (up to the 25% Bracket Limit)
On anything above the 25% Bracket Limit
Your taxable pay fills the first bucket (25% rate) until it is full. Any overflow spills into the second bucket (35% rate). You pay 25% on the first bucket and 35% on the second.
Follow these steps in order. If your pay does not include overtime, a second job, or children, you can skip Steps 2 and 3.
This is your total pay for the period before any deductions. It includes your basic salary, allowances, bonuses, overtime, and any other taxable income.
The government allows up to in overtime to be tax-free. If you earned overtime this period, subtract the tax-free portion from your gross pay.
- If your overtime is $50,000 or less for the month, all of it is tax-free.
- If your overtime exceeds $50,000 for the month, only $50,000 is tax-free. The rest counts as taxable pay.
If you are paid more than once a month, the $50,000 is shared across all your pay periods in that month. For example, if you used $30,000 of tax-free overtime in the first fortnight, only $20,000 remains for the second fortnight.
Adjusted pay = gross pay minus tax-free overtime
Your NIS contribution (calculated using the NIS guide ) is subtracted from your pay before tax. If you pay for or through your employer, your employee portion is also subtracted. See the Insurance and PAYE 2026 Simple Guide for details on what counts and what is taxable vs non-taxable. If you have children under 18, you also get a -- an extra amount subtracted per child, per period:
Add your NIS contribution, life insurance, health insurance (employee portions only), and your total child allowance together. This combined amount is subtracted from your adjusted pay.
Pay after deductions = adjusted pay minus NIS minus life/health insurance minus total child allowance
Now subtract the tax-free amount for your pay frequency (from the table above).
Chargeable income = pay after deductions minus tax-free amount
is the amount that is actually taxed. If this number is zero or negative, your PAYE is $0 -- you owe no tax this period.
Now apply the tax rates to your chargeable income.
PAYE = chargeable income x 25%
Split it into two parts:
First part (lower bracket) = 25% Bracket Limit x 25%
Second part (upper bracket) = (chargeable income minus 25% Bracket Limit) x 35%
PAYE = first part + second part
If your gross pay (after subtracting tax-free overtime) is , the tax-free amount changes. Instead of the fixed tax-free amount, your tax-free amount becomes .
This means high earners get a different (usually larger) tax-free amount, but they also face the 35% rate on more of their income.
If your adjusted pay is above the High-Earner Threshold:
Tax-free amount = adjusted pay divided by 3
Everything else stays the same -- you still subtract NIS, child allowance, and the tax-free amount, then apply 25% and 35% as usual.
The government gives you a tax-free allowance on overtime pay. Here is how it works:
- Simple. Up to $50,000 of overtime each month is tax-free.
- The $50,000 is shared across all pay periods in the same month.
Imagine you have a $50,000 "overtime allowance" budget for the month. Each time you get paid, you use some of it. Whatever you used is gone. The rest carries forward to the next period in the same month.
Total tax-free overtime for the month: $50,000. The budget is fully used.
Total tax-free overtime for the month: $50,000. After that, all overtime is taxed.
The same $50,000 monthly limit also applies to .
If you have children under 18, each child reduces the amount of your pay that is taxed. The allowance is a fixed amount per child per pay period.
You are paid monthly and have 2 children under 18.
Total child allowance = 2 x $10,000 = $20,000
This $20,000 is added to your NIS contribution and subtracted from your pay before calculating tax.
If a child turns 18 during the year, their allowance stops from the period after their birthday.
Given:
- Gross pay: $300,000
- NIS (employee): $15,680 (from the NIS guide: $280,000 cap x 5.6%)
- No overtime, no children
-- Gross pay = $300,000
-- No overtime to subtract. Adjusted pay = $300,000.
-- Subtract NIS.
Pay after deductions = $300,000 - $15,680 = $284,320
-- Is the adjusted pay above the High-Earner Threshold ($420,000)? No ($300,000 is below $420,000). So use the standard tax-free amount of $140,000.
Chargeable income = $284,320 - $140,000 =
-- Is the chargeable income within the 25% Bracket Limit ($280,000)? Yes ($144,320 is below $280,000). So all of it is taxed at 25%.
PAYE = $144,320 x 25% =
Given:
- Gross pay: $146,031
- NIS (employee): $7,840 (from the NIS guide)
- No overtime, no children
-- Gross pay = $146,031
-- No overtime. Adjusted pay = $146,031.
-- Subtract NIS.
Pay after deductions = $146,031 - $7,840 = $138,191
-- Is $146,031 above the High-Earner Threshold ($193,846)? No. Use the standard tax-free amount of $64,615.
Chargeable income = $138,191 - $64,615 =
-- Is $73,576 within the 25% Bracket Limit ($129,231)? Yes. All at 25%.
PAYE = $73,576 x 25% =
Given:
- Gross pay: $250,000
- NIS (employee): $7,840
- No overtime, no children
-- Gross pay = $250,000
-- No overtime. Adjusted pay = $250,000.
-- Subtract NIS.
Pay after deductions = $250,000 - $7,840 = $242,160
-- Is $250,000 above the High-Earner Threshold ($193,846)? Use the one-third rule.
Tax-free amount = $250,000 / 3 = $83,333
Chargeable income = $242,160 - $83,333 =
-- Is $158,827 within the 25% Bracket Limit ($129,231)? Split into two brackets.
First part (25% bracket) = $129,231 x 25% = $32,308
Second part (35% bracket) = ($158,827 - $129,231) x 35% = $29,596 x 35% = $10,359
PAYE = $32,308 + $10,359 =
Given:
- Base pay: $290,000
- Overtime: $60,000
- Gross pay: $350,000
- NIS (employee): $15,680
- No children
-- Gross pay = $350,000
-- Subtract tax-free overtime. The monthly limit is $50,000. Overtime is $60,000, so only $50,000 is tax-free. The remaining $10,000 stays as taxable pay.
Adjusted pay = $350,000 - $50,000 = $300,000
-- Subtract NIS.
Pay after deductions = $300,000 - $15,680 = $284,320
-- Is $300,000 above the High-Earner Threshold ($420,000)? No. Use the standard tax-free amount of $140,000.
Chargeable income = $284,320 - $140,000 =
-- Is $144,320 within the 25% Bracket Limit ($280,000)? Yes.
PAYE = $144,320 x 25% =
Given:
- Gross pay: $70,000
- NIS (employee): $3,920 (from the NIS guide)
- No overtime, no children
-- Gross pay = $70,000
-- No overtime. Adjusted pay = $70,000.
-- Subtract NIS.
Pay after deductions = $70,000 - $3,920 = $66,080
-- Is $70,000 above the High-Earner Threshold ($96,923)? No. Use the standard tax-free amount of $32,308.
Chargeable income = $66,080 - $32,308 =
-- Is $33,772 within the 25% Bracket Limit ($64,615)? Yes.
PAYE = $33,772 x 25% =
Given:
- Gross pay: $160,000
- NIS (employee): $7,840
- No overtime, no children
-- Gross pay = $160,000
-- No overtime. Adjusted pay = $160,000.
-- Subtract NIS.
Pay after deductions = $160,000 - $7,840 = $152,160
-- Is $160,000 above the High-Earner Threshold ($210,000)? No. Use the standard tax-free amount of $70,000.
Chargeable income = $152,160 - $70,000 =
-- Is $82,160 within the 25% Bracket Limit ($140,000)? Yes.
PAYE = $82,160 x 25% =
Given:
- Base pay: $120,000
- Overtime: $30,000
- Gross pay: $150,000
- NIS (employee): $7,840
- No children
- This is the first fortnight of the month, so the full $50,000 overtime budget is available.
-- Gross pay = $150,000
-- Subtract tax-free overtime. Budget remaining = $50,000. Overtime = $30,000, which is less than $50,000, so all $30,000 is tax-free.
Adjusted pay = $150,000 - $30,000 = $120,000
-- Subtract NIS.
Pay after deductions = $120,000 - $7,840 = $112,160
-- Is $120,000 above the High-Earner Threshold ($193,846)? No. Use the standard tax-free amount of $64,615.
Chargeable income = $112,160 - $64,615 =
-- All at 25%.
PAYE = $47,545 x 25% =
The overtime budget now has $50,000 - $30,000 = for the second fortnight.
Given:
- Gross pay: $300,000
- NIS (employee): $15,680
- 2 children under 18
- No overtime
-- Gross pay = $300,000
-- No overtime. Adjusted pay = $300,000.
-- Subtract NIS and child allowance.
Child allowance = 2 children x $10,000 = $20,000
Total deductions = $15,680 (NIS) + $20,000 (children) = $35,680
Pay after deductions = $300,000 - $35,680 = $264,320
-- Is $300,000 above the High-Earner Threshold ($420,000)? No. Use the standard tax-free amount of $140,000.
Chargeable income = $264,320 - $140,000 =
-- Is $124,320 within the 25% Bracket Limit ($280,000)? Yes.
PAYE = $124,320 x 25% =
Without the child allowance, the PAYE would have been $36,080 (see Example 1). The two children saved this employee $5,000 in tax.
Given:
- Gross weekly pay: $30,000
- Tax-free amount (weekly): $32,308
Your gross pay ($30,000) is the tax-free amount ($32,308).
PAYE =
You owe no tax this period.
Given:
- Gross pay: $500,000
- NIS (employee): $15,680 (from the NIS guide: $280,000 cap x 5.6%)
- No overtime, no children
-- Gross pay = $500,000
-- No overtime. Adjusted pay = $500,000.
-- Subtract NIS.
Pay after deductions = $500,000 - $15,680 = $484,320
-- Is $500,000 above the High-Earner Threshold ($420,000)? Use the one-third rule.
Tax-free amount = $500,000 / 3 = $166,667
Chargeable income = $484,320 - $166,667 =
-- Is $317,653 within the 25% Bracket Limit ($280,000)? Split into two brackets.
First part (25% bracket) = $280,000 x 25% = $70,000
Second part (35% bracket) = ($317,653 - $280,000) x 35% = $37,653 x 35% = $13,179
PAYE = $70,000 + $13,179 =
Monthly overtime exemption
Child allowance (monthly)
Child allowance (bimonthly)
Child allowance (fortnightly)
PAYE is income tax deducted from your pay by your employer. To calculate it:
Start with your gross pay.
Subtract any tax-free overtime (up to $50,000 per month, shared across pay periods).
Subtract your NIS contribution, life/health insurance (employee portions), and any child allowance.
Subtract the tax-free amount for your pay frequency.
What remains is your chargeable income. Tax the first portion at 25% and anything above the 25% Bracket Limit at 35%.
If you earn above the High-Earner Threshold, your tax-free amount changes to one-third of your pay instead of the fixed amount.
If your pay is less than the tax-free amount, you pay no PAYE.