If you have ever felt as though you end up worse off when you work more, a new Treasury paper indicates you might be right.

The analytical note, released this week, shows that 6 percent of all New Zealanders, and 30 percent of single parents, face effective tax rates of more than 50 percent.

And some taxpayers could even have effective marginal tax rates of more than 100 percent.

Effective marginal tax rates reflect how much of each extra dollar a person earns is lost due to higher rates of tax or the clawback of supports such as Working for Families and the Accommodation Supplement.

Someone with an effective marginal tax rate of 50 percent is only 50c better off for every $1 earned.

High effective marginal tax rates were unavoidable in any targeted welfare system that wanted to support those most in need while managing government costs, authors Meghan Stephen, Yvonne Wang and Liam Barnes said.

Families with children tended to have much higher effective marginal tax rates, because of the way their benefits would reduce (alongside Working for Families and the Accommodation Supplement) as their incomes rose, they said.

Thirteen percent of two-parent households and 30 percent of single-parent households were paying effective marginal tax rates of more than 50 percent.

For a single parent earning a median wage of $33 an hour in the 2025 tax year, working between eight and 20 hours a week would mean they only kept 10c of every additional $1 earned because of tax and the reduction in benefits and Working for Families credits they could receive.

It was worse for people working just over half-time.

"When working between 20 to 24 hours, they keep none of the additional dollar earned due to reductions in the minimum family tax credit, income tax, and the ACC levy. In this case, they actually lose nearly 2 cents by earning an extra dollar," the authors said.

"When working between 26 to 31 hours, they keep slightly less than 30 cents of each additional dollar earned due to income tax and reductions in Working for Families tax credits and Accommodation Supplement.

"When working between 31 hours and full-time, they keep less than 20 cents of each additional dollar earned due to a higher income tax rate and reductions in Working for Families tax credits and Accommodation Supplement."

Those people would also face additional costs associated with working, such as childcare, the authors said.

"We often assume that working more hours leads to a corresponding increase in take-home pay. However, this is not always the case. Sometimes extra work might push someone into a higher tax bracket or mean they receive less government benefits. Their additional take-home pay might be less than expected."

Gareth Kienan, chief forecaster at Infometrics, said it was alarming to see it presented in such a way.

Working for Families could lead to perverse outcomes, he said.

"It's hard to avoid them. The question is what is the appropriate income or number of hours working level that it kicks in at ... If you look at a single parent, the fact your effective marginal tax rate kicks up to 93 percent when you start earning over $15,000 is huge and that's a massive barrier to even bother at that point."

That could create situations where people were out of the workforce for longer than they might otherwise be, which could cause their skills to erode, he said.

"It can be harder to get back in later on, it can become a vicious cycle."

It would take wholesale reform of the tax system to change, he said.

The authors said while some reduction in benefits was inevitable in a targeted system, the key policy question was whether the current abatement thresholds and rates were set at the right levels.

"The only way to completely eliminate high [effective marginal tax rates] while maintaining adequate income support would be through universal payments. However, this approach would face significant challenges as it would require substantially higher government costs to achieve the same support for low-income families as targeted support."

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