Provisional tax, and what the $5,000 line actually triggers

One number in last year's return decides whether you spend next year paying tax three times instead of once. Here is what crosses the line, what the instalments are, and what Inland Revenue charges when they are short.

What crosses the line

residual income tax over $5,000

Standard option uplift

Previous-year RIT plus 5%, or two-years-prior RIT plus 10%Inland Revenue, standard provisional tax option

Instalments, 31 March balance date

28 Aug, 15 Jan, 7 MayInland Revenue, provisional tax payment dates

Interest charged on shortfalls

8.97% a year, from 16 January 2026Inland Revenue, interest on overpayments and underpayments

Interest paid on overpayments

2.25% a year, from 16 January 2026Inland Revenue, interest on overpayments and underpayments

It is not a new tax, it is the same tax paid earlier

Provisional tax is income tax on the year you are currently in, paid in instalments before that year has finished. Nobody knows what you will earn, so the payments are an estimate, and the year-end return settles the difference. That is the whole idea, and most of the confusion around it comes from treating the instalments as a separate bill rather than as a down payment on the one you already expect.

It exists because a salaried employee has tax deducted every payday and a self-employed person does not. Without provisional tax, one group would fund the government fortnightly and the other would fund it once a year, thirteen months in arrears. The instalments put the two roughly in step.

The line is $5,000, and it is measured on last year

Inland Revenue states it plainly: you have to pay provisional tax if you had to pay more than $5,000 tax at the end of the year from your last return. The figure they mean is residual income tax, which is your tax bill after credits such as PAYE already deducted, not your turnover and not your profit.

The timing is the part people miss. The threshold is tested on the return you have already filed, and it obliges you for the year after it. Inland Revenue's own example: if your residual income tax from your 2023 return is more than $5,000, then you will need to pay provisional tax during the 2024 tax year. A good year therefore commits you to instalments through the following year whether or not that year turns out anything like it.

The standard option, and why there are two uplifts

The standard option takes a known number rather than a guess. The instalments are based on either your previous year's residual income tax plus 5%, or your residual income tax from two years ago plus 10%. Which one applies depends on when you file, and whether you have an extension of time. Inland Revenue, standard provisional tax option (opens in a new tab).

Without an extension of time, the standard option uses the previous year's residual income tax plus 5%, including when the return is filed after a provisional tax date. With an extension, earlier instalments may use residual income tax from two years ago plus 10%. The uplift depends on when the previous year's return is filed; the final instalment uses the previous year's residual income tax, or its expected amount, plus 5%. Inland Revenue, standard provisional tax option (opens in a new tab).

The standard option is based on earlier residual income tax. It is not a calculation of the current year's actual profit. The final income tax return establishes the year's liability and any difference from provisional payments. Inland Revenue, standard provisional tax option (opens in a new tab). Inland Revenue, provisional tax (opens in a new tab).

Three dates, or two if you file GST six-monthly

For a standard 31 March balance date, the standard or estimation option generally has instalments on 28 August, 15 January and 7 May. Non-standard balance dates have different due dates, and GST registration can affect the instalment options. Inland Revenue, provisional tax payment dates (opens in a new tab).

Under the standard option there are normally three instalments. A taxpayer registered for GST and filing six-monthly GST returns pays two instalments instead. The filing arrangement matters when identifying the applicable payment schedule. Inland Revenue, standard provisional tax option (opens in a new tab). Inland Revenue, provisional tax payment dates (opens in a new tab).

What being short actually costs

From 16 January 2026 Inland Revenue charges 8.97% a year on underpaid tax and pays 2.25% on overpaid tax. The circumstances in which interest starts depend on the provisional tax option and residual income tax. Inland Revenue, interest on overpayments and underpayments (opens in a new tab). Inland Revenue, interest on provisional tax (opens in a new tab).

Under the standard option, residual income tax below $60,000 generally attracts debit or credit interest from the day after the end-of-year tax due date. At $60,000 or more, interest generally runs from the day after the final instalment date. For residual income tax of $60,000 or more, credit interest requires earlier instalments to have been paid in full and on time, and earlier late or underpaid instalments can attract debit interest from the day after their own due dates. Inland Revenue lists exceptions to these rules. Inland Revenue, interest on provisional tax (opens in a new tab).

The other three options, briefly

Inland Revenue offers more than one option, and the standard option this guide describes is the one whose figures this repository holds. The estimation option lets you pay what you actually expect to owe, which suits an income that has dropped, and moves the risk of getting it wrong onto you. The accounting income method, AIM, is available to individuals and companies under a turnover limit Inland Revenue state on their own AIM guidance, and pays provisional tax only when the business makes a profit, calculated by accounting software as the year goes. This guide names that limit rather than restating it: a turnover figure copied from somewhere else and presented as Inland Revenue's would be exactly the unsourced figure this site refuses to carry. Inland Revenue, provisional tax (opens in a new tab). Inland Revenue, accounting income method (opens in a new tab).

The ratio option matches payments to GST-reported sales. Its conditions are about tax, not size: registered for GST for all of the previous tax year and part of the year before, filing GST monthly or two-monthly, not a partnership, and residual income tax for the previous year above $5,000 and up to a residual income tax ceiling that Inland Revenue state on their ratio option guidance. That ceiling is a limit on residual income tax and not a turnover cap, which is worth saying because it is frequently repeated as one. Inland Revenue, ratio option (opens in a new tab).

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