US Tax - Being a W-2 Employee in New Zealand

Here we are, already in March and past the first US tax deadline of the year. Its been a little while since our last article, but today we’ll cover one of the increasingly common situations we face.

In this busy US tax season, we encounter many clients with differing financial circumstances, but in 2026 one common US tax advice area for us has been on the implications of being a W-2 employee here in New Zealand.

We’ll start with the basics…

What is a W-2 Employee?

A W-2 employee is a waged employee of a United States business. The wording “W-2”, is reference to the end of year tax document which all W-2 employees receive, showing the US federal tax paid and gross income (along with social security tax and other benefits paid).

A W-2 employee is typically subject to US payroll withholding, meaning US federal income tax, Social Security, and Medicare are deducted at source through the employer’s payroll system.

Nothing particularly out of the ordinary here, and almost no different to an NZ employee who is subject to KiwiSaver and PAYE deductions.

Working in New Zealand on a W-2

In the last few years, there has been quite an increase of remote workers in New Zealand, and notably an increase in W-2 employees working from New Zealand. This is where things can begin to get a little complicated on the tax front.

From a US perspective, nothing has really changed. You’re still an employee, still receiving a W-2, and still having US taxes withheld through payroll.

This is the part that does tend to trip some clients up, as it is reasonable to arrive at the assumption of “My job and employer are in the US and I’m being paid to my US bank account, surely this is US income and not taxable here?”.

However, this is where US tax advice, alongside specialist NZ tax advice is essential. We have the NZ US tax treaty which specifically deals with this particular situation.

For those who are NZ tax resident or otherwise meeting certain conditions under the NZ US tax treaty, New Zealand may tax based on where the work is physically performed. So if you are sitting in Auckland (or anywhere else in NZ) doing your job, Inland Revenue will generally consider that income to be New Zealand-sourced employment income — regardless of where your employer is located.

Having a US W-2 job in New Zealand and IR56

As we know, most taxing authorities tend to prefer having taxes paid throughout the year, as opposed to a large tax liability when individuals file their tax return.

This is captured in the US tax system though withholding and estimated taxes, and New Zealand through PAYE and provisional taxes.

The IR56 is essentially New Zealand’s way of capturing employment income that hasn’t gone through the standard PAYE system.

Of course, those who are employed by an NZ employer, will usually have PAYE, KiwiSaver and ACC deducted through their weekly or monthly wages.

But a US employer running US payroll for an NZ based employee typically isn’t set up to do any of that.

So instead, the obligation shifts to you.

The IR56 is a monthly form filed with IRD to report your wages; and pay NZ tax on them monthly. We do work with excellent NZ tax practices who can help US citizens set this up and advise.

Will I be double taxed as a W-2 Employee in New Zealand

This is indeed possible.

In the above situation, both NZ and the US are taxing the wages monthly (or each time payroll is run).

To clarify:

-          Withholding tax, social security and Medicare will be getting deducted from your US wages. It is very difficult to get the withholding rate down to zero

-          In New Zealand, the IR56 is being filed to pay taxes monthly on your wages

Whilst this can sometimes present a short term cashflow issue for some clients, fortunately the US tax will usually be refundable.

The NZ US Double Tax Treaty

This is where the treaty comes into play.

Under Article 15 of the NZ US Tax Treaty (Dependent Personal Services), a treaty provision exists whereby:

Wages shall be taxed in the country where the employer is based, unless the employee performs the work in the other country (ie NZ) and is present in the other country for greater than 183 days

Do note, the above isn’t a direct copy of the treaty, but this is the crux of what it says.

As we can see above, for an individual residing in NZ and getting wages from the US, the treaty allows NZ to tax the income first.

As a US citizen however, the US does apply tax on a taxpayers worldwide income, so the effect of the treaty is to say that the IRS will allow a credit against US tax, for NZ tax paid.

As NZ tax rates are so much higher than NZ, it does usually mean that the US tax is offset in full by the credits (ie no US tax to pay, so withholding is refunded).

As an example:

-          W-2 Wages of $100,000

NZ Tax Rate – 33% - $33,000 in tax is paid

US Tax Rate – 25% - $25,000 tax withheld from wages

In this case, we have $33,000 of tax credit for the NZ tax paid, which has offset the US tax completely (with $8,000 to carry forward to future years).

Using the above scenario, the full $25,000 could be refundable from IRS.

It is important to note here, US tax and US foreign tax credit is a complex area of taxation, and limitations on the amount of credit claimable exist. In some cases it is as smooth as the example above, but not always.

Timing of US Tax Refund

So, we’ve established above that during the year, both US withholding tax and NZ tax through IR56 must be paid. Not ideal from a cashflow perspective.

However, we can also obtain a refund of the US withholding, due to the NZ US tax treaty provision mentioned above.

This occurs on the US tax return filed the following year (ie work performed in 2026 would be refunded on the 2026 tax return, filed in 2027). It can be many months between filing a US tax return, and recieving a refund.

As part of this US tax return, your US tax advisor must file Form 8833 – Tax Treaty Disclosure, to advise the IRS of the situation, and that under the treaty the W-2 wages are taxed in NZ (and that the US must allow a credit).

Fortunately, this is fairly non-controversial and the treaty is generally respected by the IRS and IRD.

Social Security Tax

Whilst ordinary US federal taxes can be offset by a credit for NZ tax paid, on W-2 wages, unfortunately there is no offset for social security tax.

This is where an element of double taxation does exist for a US W-2 employee working in NZ.

This totals just over 15% tax rate, which is made up of both an employee and employer contribution (along with Medicare).

This tax unfortunately cannot be offset with foreign tax credits, nor can be claimed as a credit against NZ tax.

It is important to note, social security tax is a mandatory requirement whenever we have a US citizen employed by a US company.

Is there a more US tax efficient set up?

In some cases there is.

With effective US and NZ tax advice, along with US tax planning, it is possible to help make the NZ and US taxes of remote work in New Zealand less burdensome.

This can in some cases require moving to being a 1099 contractor, along with other options.

Here at The US Tax Team, we offer clear, helpful US tax advice from our US tax consultants. In addition, we work with excellent NZ tax advisors.

Summary

The opportunity to live and work in New Zealand but retaining US employment can be a fantastic option to have, and as is clear above, it is doable.

Obtaining expert US tax advice to ensure US tax compliance and efficiency is essential to preventing costly issues further down the line.

If you’re looking for US tax advice, speak with our US Tax Consultant, David Tzimenakis today – info@usatax.nz