IRD Penalties and Interest Explained
Updated for 2026 IRD rates
Two Separate Charges
When a return or payment is late, IRD can apply two different things at the same time:
- A penalty — a fixed or percentage charge for not filing or not paying on time.
- Interest (UOMI) — use of money interest, calculated daily on the unpaid amount, to compensate for the tax being paid late.
They stack. A late payment can attract the late filing penalty, late payment penalties and use of money interest together, so the cost of a small debt left alone grows quickly.
Late Filing Penalties
For income tax returns, the penalty is initially charged at $50 and adjusted once you file, based on the net income shown in the return:
| Net income | Late filing penalty |
|---|---|
| Less than $100,000 | $50 |
| $100,000 to $1 million | $250 |
| More than $1 million | $500 |
- GST returns: $50 if you are on the payments basis; $250 if you are on the hybrid or invoice basis. Usually due on the 28th of the month after the return was due, with two exceptions — 28 December moves to 15 January, and 28 May moves to 7 June.
- Employment information: $250, imposed monthly, however many times the employer files late in that month. Due 30 days after the month the employment information was due.
- Non-electronic filing penalty: if you agreed to file employment information online and file on paper instead, the penalty is the greater of $250 or $1 for each person employed at any time during the month.
IRD's practice for employment information is graduated: the first late return of its kind produces a warning letter, and a second late return within 12 months may attract the penalty. The framework is set out in Standard Practice Statement SPS 19/04.
Late Payment Penalties
Late payment penalties run in three stages from the day after the payment due date:
| When | Penalty |
|---|---|
| Day after the payment due date | 1% of the unpaid tax |
| 7th day after the payment due date | 4% of the remaining tax including penalties |
| Each following month the balance is unpaid | 1% (not applied to GST, income tax including provisional tax, or Working for Families overpayments) |
There is a grace period in some cases: if this is your first late payment in a two-year period, IRD may give you a grace period before charging penalties and will tell you your new due date. If you do not pay by that new date, the penalty is charged from the original due date.
Child support has its own, different penalty rates and is not covered by the table above.
Use of Money Interest (UOMI)
IRD calculates interest daily on overpaid or underpaid tax. It does not compound, and it is not included when penalties are calculated. The rates are set by Order in Council to track market rates, so they move during the year.
| Rates from | IRD charges (underpayment) | IRD pays (overpayment) |
|---|---|---|
| 16 January 2026 | 8.97% | 2.25% |
| 8 May 2025 | 9.89% | 3.27% |
| 16 January 2025 | 10.88% | 4.30% |
| 29 August 2023 | 10.91% | 4.67% |
| 9 May 2023 | 10.39% | 3.53% |
Key points:
- Interest applies to income tax, GST, PAYE, KiwiSaver contributions, ESCT, RWT, NRWT, fringe benefit tax, Working for Families, residential land withholding tax and more.
- Interest is not applied to amounts under $100, or to child support payments. No credit interest is paid on FamilyBoost or Fees Free.
- Underpayment interest starts the day after the original due date and stops the day the overdue balance (including interest) is paid in full.
- Overpayment interest starts on the latest of the day after the original due date, the day after payment, and — where a return is needed to generate the refund — the date you filed the return.
- IRD pays you interest on overpayments, but it stops in most cases the day the overpaid tax is refunded or transferred to another period or account.
Extra Time on a Notice of Assessment
When you get a notice of assessment or a statement of account balance, you have up to an extra 30 days to pay. If you pay within that window, you do not have to pay the interest IRD added between the date the notice or statement was issued and the date you paid. Pay after 30 days and IRD recalculates — which means a payment that looked like it cleared the balance may not clear it in full.
Employment Information and Non-Payment
An employer who files employment information but pays the wrong amount can face a non-payment penalty of 10% of the overdue amount, with a further 10% added each month the amount remains unpaid. When the unpaid amount is paid or an instalment arrangement is entered into, the last 10% penalty reduces to 5%.
Getting Penalties and Interest Remitted
IRD remits interest only in limited circumstances — for example, where IRD gave wrong advice and that advice directly caused the non-compliance. Before requesting remission, IRD directs taxpayers to Standard Practice Statement SPS 18/04, Options for relief from tax debt, and to check whether the situation actually meets the stated conditions. A late filing penalty similarly turns on whether there was an extension of time or a valid reason for not filing.
Interest and Your Return
- Interest IRD pays you on an overpayment is gross income — include it in your income tax return for the year it was refunded, even if you use it to pay other tax.
- Interest you pay on an underpayment is deductible for business purposes — claim it as an expense on your income tax return.
- Where a return is reassessed, both of these shift to the income year after the year of assessment or reassessment.
- On tax in dispute, you can put payment on hold; if IRD decides the disputed amount was not right, it refunds the tax and pays interest.
Common Mistakes
- Assuming under $100 is safe. True for interest — but penalties and the filing obligation are separate.
- Paying the tax and ignoring the return. Filing penalties and payment penalties are independent of each other.
- Leaving a small balance. At 8.97% calculated daily, a balance that "isn't worth paying yet" accrues steadily, and further 1% monthly penalties can attach.
- Assuming provisional tax is exempt from the 1% monthly penalty. Income tax including provisional tax and GST are excluded from the monthly 1% step — but the initial 1% and the 4% still apply, and UOMI runs from the instalment date.
- Forgetting to include overpayment interest in the return. It is gross income and IRD will match it.
Related Guides
Deep dive — 2026 update
What a late payment actually costs: three scenarios
Take a $4,000 GST debt due on 28 June that is finally paid on 28 September — three months late:
| Charge | Basis | Amount |
|---|---|---|
| Late filing penalty | Invoice basis GST return | $250.00 |
| Late payment penalty — 1% | One day after due date | $40.00 |
| Late payment penalty — 4% | 7th day after due date | $161.60 |
| UOMI at 8.97% | Daily on the outstanding balance for ~3 months | ~$91 |
| Total additional cost | ~$542 |
That is roughly 13.5% on top of the tax itself, on a debt only three months old. Note the shape: the fixed penalties do most of the early damage, and UOMI then compounds the cost steadily for as long as the balance stands. It is also why paying a debt fast, even in part, beats waiting for a perfect solution — payments reduce unpaid interest first and tax second, which slows the daily accrual.
Why instalment arrangements are cheaper than silence
Entering an instalment arrangement stops an employer's non-payment penalty escalating — the last 10% penalty is reduced to 5% — and keeps the rest of the compliance history clean. Silence does neither. The compliance history matters beyond the current debt: each late return is compared against prior behaviour, and SPS 19/04's graduated approach for employment information deliberately gives a first warning before penalising. Once the first warning exists, the trigger for the second return is automated.
Penalty versus interest — the mental model
Penalties punish behaviour: they turn on whether you filed and whether you paid. Interest prices time: it turns on how long money was held. That is why the two can be argued about differently. Amending a filing error removes the basis for some penalties; getting interest remitted requires evidence of IRD's own error under SPS 18/04, and remittance is genuinely rare. The reliable strategy is not arguing the interest away — it is paying the balance down early so less of it accrues, and file the moment you know a return is late.