Unused Leave & Lump Sum Tax 2025-26 & 2026-27
Calculate withholding on unused annual leave, long service leave and other termination payments. Select the income year and pay cycle for the applicable ATO Schedule 7 and Schedule 11 settings.
2025-26 is the return being lodged now.
Post-1993 leave uses an estimated Schedule 7 marginal withholding rate
Salary/wages earned this year (excluding leave payouts)
Schedule 7 uses your last normal fortnightly pay. Leave blank to estimate it as annual income ÷ 26.
Gratuity, severance, or other termination payment
2025-26 ATO Schedule 7 & Schedule 11 withholding rates
Enter your leave payout or termination payment details to see the withholding breakdown
Next best steps
When you leave a job, your employer must pay out any accrued but untaken annual leave. The ATO treats this as a lump sum payment (Type A) — the tax rate depends on when the leave was accrued and why you left.
| Scenario | Tax treatment |
|---|---|
| Leave accrued before 18 Aug 1993 | Flat 32% (includes Medicare levy) |
| Leave accrued after 17 Aug 1993 — normal termination | Schedule 7 marginal withholding estimate |
| All annual leave — genuine redundancy | Flat 32% (includes Medicare levy) |
Long service leave has three accrual periods, each with different tax treatment. The pre-1978 concession is very generous — only 5% of that component is added to your assessable income.
| Accrual period | Tax treatment |
|---|---|
| Pre-16 Aug 1978 | Only 5% assessable; marginal withholding estimated on that portion |
| 16 Aug 1978 – 17 Aug 1993 | Flat 32% (includes Medicare levy) |
| Post-17 Aug 1993 — normal termination | Schedule 7 marginal withholding rate |
| Post-17 Aug 1993 — genuine redundancy | Flat 32% (includes Medicare levy) |
If you are made genuinely redundant, part of the genuine redundancy payment may be tax-free. For 2025-26 — the return being lodged now:
$13,100 base amount + $6,552 × completed years of service
For example, with 10 completed years of service, the maximum tax-free limit is $13,100 + $65,520 = $78,620. The actual tax-free amount cannot exceed the genuine redundancy payment received. For 2026-27, the year still in progress, the limit is $13,598 base + $6,801 per year (10 years = $81,608). Any genuine redundancy amount exceeding the applicable limit is treated as an ETP and taxed accordingly.
This tax-free treatment only applies to genuine redundancies where the position is no longer required. It does not apply to voluntary resignation, misconduct, or reaching retirement age.
ETPs are payments made because of the termination of employment, such as severance pay, gratuities, or golden handshakes. Taxed under ATO Schedule 11 with concessional caps.
| Component | Tax rate (incl. Medicare) |
|---|---|
| Within cap — below preservation age | 32% (30% + 2% ML) |
| Within cap — at/above preservation age | 17% (15% + 2% ML) |
| Above cap | 47% (45% + 2% ML) |
Lump sum A, B, D and E on your income statement
When a termination or back payment is reported through Single Touch Payroll, it arrives on your income statement as a lettered lump sum rather than as ordinary salary. The letter is what decides the tax treatment, so it is worth checking that the split your employer reported matches what actually happened.
| Code | What it is | How it is taxed |
|---|---|---|
| Lump sum A | Unused annual leave and annual leave loading, plus long service leave accrued from 16 Aug 1978, paid out on termination. Reported as type R where the termination is a genuine redundancy, invalidity or early retirement scheme, and type T for pre-18 Aug 1993 accruals on any other termination. | Concessional flat withholding of 32% (30% plus the 2% Medicare levy). Assessable in full — the flat rate is withholding, and the final position is settled at assessment against your marginal rate. |
| Lump sum B | Long service leave that accrued before 16 Aug 1978, paid out on termination for any reason. The employer reports the whole amount. | Only 5% of the reported amount is assessable, and that 5% is taxed at your marginal rate. The other 95% never enters taxable income. |
| Lump sum D | The tax-free part of a genuine redundancy or early retirement scheme payment — the amount up to the indexed limit. | Entirely tax free and not assessable income. For 2025-26 the limit is $13,100 plus $6,552 per completed year of service. Anything above it becomes the taxable component of an ETP. |
| Lump sum E | Back pay of salary, wages or certain allowances that accrued, or was payable, more than 12 months before the date it was paid — a delayed pay-rise backdated over two years, a successful underpayment claim, a settled award increase. | Assessable in the year you receive it, but it can attract the lump sum payment in arrears (LSPIA) tax offset so the delay does not push you into a higher bracket. See the next section. |
| Payment in lieu of notice | Paid instead of working out your notice period. Not a lettered lump sum in its own right. | Generally an ETP under Schedule 11. In a genuine redundancy its classification turns on whether the same payment would have been expected on a voluntary resignation. |
| ETP | Severance above the tax-free limit, gratuities, golden handshakes, compensation for loss of job — reported separately from leave. | Schedule 11: 32% within the cap below preservation age, 17% within the cap at or above it, and 47% above the cap. |
Lump sum C was retired years ago — pre-1 July 2007 transitional termination payments used it, and nothing is reported under it now. If you are reading an old payment summary, that is what the empty column was for.
Back pay, lump sum E and the arrears tax offset
Lump sum E is the one code on the list that has nothing to do with leaving a job. It exists because Australia taxes income in the year it is received, so several years of backdated pay landing in one year would otherwise be taxed at the top marginal rate that the lump creates — a penalty for your employer's delay rather than for anything you did.
What gets coded E
A back payment of salary, wages or certain allowances that accrued, or was payable, more than 12 months before the day it was paid. Backdated pay rises, settled underpayment claims, delayed award increases and some workers-compensation and Commonwealth payments qualify.
Back pay accrued within the last 12 months is not lump sum E — it is ordinary salary in the year of payment, taxed at marginal rates with no offset.
The $1,200 threshold is gone
Employers used to report back pay as lump sum E only once it reached $1,200. That reporting threshold was removed from 1 July 2025, so every back payment relating to a period more than 12 months earlier is now reported as lump sum E regardless of size.
Employers also no longer issue a separate lump sum E letter — the year-by-year breakdown appears on your income statement instead.
The LSPIA tax offset — when it applies
Why your estimate looks worse than your actual assessment. The myTax estimate does not include the LSPIA tax offset, the Medicare levy exemption or the Medicare levy surcharge offset that can attach to a lump sum in arrears — the ATO calculates those while processing the return. If you have a lump sum E amount, expect the notice of assessment to be better than the on-screen estimate, not worse. The same is true of the estimate on this page: it prices the leave and ETP components, not the arrears offset.
Need to separate genuine redundancy from ETP?
See what stays tax-free, what gets excluded from the redundancy concession, and when the balance falls into ETP rules.
Read the redundancy vs ETP explainer →The genuine redundancy tax-free limit is indexed each 1 July in line with AWOTE (average weekly ordinary time earnings), and only completed years of service count — a part-year is rounded down. Find the row closest to your completed years of service below.
| Years of service | 2026-27 tax-free limit | 2025-26 tax-free limit |
|---|---|---|
| 1 | $20,399 | $19,652 |
| 2 | $27,200 | $26,204 |
| 3 | $34,001 | $32,756 |
| 5 | $47,603 | $45,860 |
| 8 | $68,006 | $65,516 |
| 10 | $81,608 | $78,620 |
| 15 | $115,613 | $111,380 |
| 20 | $149,618 | $144,140 |
| 25 | $183,623 | $176,900 |
These examples use the same engine as the calculator above, at 2025-26 rates — the calculator's default (the return being lodged now).
Example A — Resignation: $85,000 salary + $8,000 unused annual leave (all accrued after 17 Aug 1993)
Gross annual leave: $8,000
Tax-free component: none — this is a resignation, not a genuine redundancy
Estimated marginal withholding using the $85,000 other-income input: $2,548
Total tax withheld: $2,548
Net payment: $5,452 — effective rate 31.9%
Example B — Genuine redundancy: $70,000 salary, 10 completed years of service, $12,000 unused annual leave, $95,000 taxable ETP
Maximum genuine redundancy tax-free limit: $78,620 ($13,100 + $6,552 × 10 years) — shown separately and not added to this example's gross payment
Unused annual leave, taxed at 32% flat (redundancy rate): $3,840 tax on $12,000 gross
Taxable ETP within cap, taxed at 32% (below preservation age): $30,400 tax on $95,000
Total gross payment: $107,000
Total tax withheld: $34,240
Net payment: $72,760 — effective rate 32.0%
Example C — Resignation with split long service leave: $90,000 salary, $20,000 LSL (post-17 Aug 1993) + $5,000 LSL (16 Aug 1978 – 17 Aug 1993)
LSL (16 Aug 1978 – 17 Aug 1993), taxed at 32% flat: $1,600 tax on $5,000 gross
LSL (post-17 Aug 1993), estimated marginal withholding using the $90,000 other-income input: $6,448 on $20,000 gross
Total gross LSL: $25,000
Total tax withheld: $8,048
Net payment: $16,952 — effective rate 32.2%
Excluded ETPs (genuine redundancy excess, invalidity, early retirement) use the ETP cap alone. Non-excluded ETPs (e.g. a golden handshake) use the lesser of the ETP cap and the whole-of-income cap, which is fixed by statute and does not index.
| Cap | 2026-27 | 2025-26 |
|---|---|---|
| ETP cap (excluded ETPs) | $270,000 | $260,000 |
| Whole-of-income cap (non-excluded ETPs) | $180,000 | $180,000 |
How is unused annual leave taxed in Australia?
How is unused long service leave taxed?
What is the genuine redundancy tax-free amount for 2025-26?
What is the difference between leave payments and ETP?
What is the 32% flat rate for leave?
Are leave payouts included in my tax return?
What is lump sum E on my income statement?
Does lump sum E change my refund?
What is the difference between lump sum A, B and D?
Don't know your redundancy payout yet? Calculate your NES redundancy weeks and notice pay before working out the tax here.
Not sure how many weeks of long service leave you've accrued? Use the Long Service Leave Calculator for your state before entering an LSL amount here.
Working out the gross annual leave figure first? The Annual Leave Loading Calculator adds the 17.5% loading to your unused-leave payout before you tax it here.
Tax Accuracy & Sources
Estimates PAYG withholding on unused annual leave, long service leave, and ETP taxable components using selectable 2025-26 or 2026-27 ATO Schedule 7 and Schedule 11 settings. Schedule 7 marginal withholding uses the selected pay cycle and normal gross pay, combining all applicable leave components before per-period rounding. The redundancy figure is a maximum tax-free limit only and is not added to payment totals. It does not calculate the actual tax-free part of a gross redundancy payment, or cover payment in lieu of notice, back pay, multiple ETPs in one year, or pre-July 1983 service components.