Tax rate change for backdated lump sum payments

The Beehive in Wellington

From 1 April 2024, Inland Revenue (IR) is providing an alternate tax rate for people receiving backdated weekly compensation and personal service rehabilitation payments relating to more than one tax year.

Multi-year backdated lump sum payments will now be taxed separately from other income received by a client in the same tax year. These lump sum payments will be taxed at the client’s average tax rate, calculated over the past four years before receipt of payment.  

Prior to this change, backdated lump sum payments received by clients were taxed in the year of receipt at the client’s marginal tax rate. This meant that the lump sum payment may have moved the client into a higher tax bracket. 

The amendment for this alternate tax rate was passed in the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill. 

Which ACC compensation payments qualify?

Backdated lump sum payments that relate to more than one tax year for:  

weekly compensation

attendant care  


home help

This does not relate to lump sum payments for permanent injury compensation. 

How the alternate tax rate is applied

We are required to apply the alternate tax rate to clients owed a backdated payment of weekly compensation that relates to one or more tax years 

Clients can choose to use the alternate tax rate for personal service rehabilitation lump sum payments across multiple income years.  

The alternate tax rate is calculated based on the average tax rate of the client’s previous four income tax years.  

If a client has other obligations with IR such as Working for Families, child support, or a student loan, these may be affected. Clients should contact IR to discuss any implications.  

This change takes effect for backdated lump sum payments received after 1 April 2024. 

More about multi-year backdated lump sum payments (Inland Revenue)