Annual Leave Payout Tax Calculator Australia (FY 2025-26)
When you leave a job, any unused annual leave you've accumulated gets paid out — but how much tax will you pay on it? The answer isn't always straightforward. Unlike your regular salary, annual leave payouts can attract different tax treatment depending on how long you've been employed and the circumstances of your departure. This guide explains exactly how annual leave payouts are taxed in Australia for FY 2025-26, with worked examples to help you estimate what you'll take home.
Want to see your total take-home pay including a leave payout? Use our Take-Home Pay Calculator to model your annual income.
What Is an Annual Leave Payout?
Under the Fair Work Act, Australian employees accrue annual leave at a rate of 4 weeks per year (pro-rata). If you haven't used all of your annual leave by the time your employment ends — whether you resign, are made redundant, or your contract finishes — your employer is legally required to pay out the unused balance.
This payout is calculated based on your ordinary rate of pay (not your overtime rate) at the time you leave. For example, if you're earning $80,000 a year and have 3 weeks of unused leave, your payout would be approximately $80,000 ÷ 52 × 3 = $4,615.
It sounds simple — but the tax treatment depends on the nature of the payment and when your employment began.
How Is Annual Leave Payout Taxed?
The ATO treats annual leave payouts differently depending on when the leave was accrued and the reason for termination. Here's the breakdown:
Scenario 1 — Termination after 17 August 1993 (most common)
For the vast majority of workers today, unused annual leave paid out on termination is taxed at your marginal income tax rate — the same as your regular salary. It's added to your total taxable income for the year and taxed accordingly. The 2% Medicare levy also applies.
Scenario 2 — Leave accrued before 18 August 1993
If you have annual leave that was accrued before 18 August 1993, that component is taxed at a maximum rate of 32% (or your marginal rate if lower). This is a concessional rate that applies only to the pre-1993 portion. Very few employees still have leave from this period, but it's worth checking if you've been with the same employer for a very long time.
Scenario 3 — Genuine redundancy or early retirement scheme
If your employment ends due to a genuine redundancy or an approved early retirement scheme, the unused annual leave component accrued before 18 August 1993 retains the 32% maximum rate. Post-1993 leave is still taxed at your marginal rate. Note that the redundancy payment itself is separate and has its own tax-free threshold.
| Taxable Income (FY 2025-26) | Marginal Rate |
|---|---|
| $0 – $18,200 | 0% (tax-free threshold) |
| $18,201 – $45,000 | 16% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001+ | 45% |
Your marginal rate applies to your total taxable income for the year — including your regular salary, the leave payout, and any other income. So a leave payout received mid-year, on top of several months of salary already earned, can push your total income into a higher bracket. Use our Income Tax Calculator to see how the brackets affect you.
Worked Example: Annual Leave Payout Tax Calculation
Let's walk through a practical example. James earns $95,000 per year and resigns in January 2026 after working for 8 months of the financial year. He has 15 days (3 weeks) of unused annual leave.
James's Situation
- Annual salary: $95,000
- Months worked in FY 2025-26: 8 (July 2025 – February 2026)
- Salary earned to date: $95,000 ÷ 12 × 8 = $63,333
- Unused annual leave: 3 weeks = $95,000 ÷ 52 × 3 = $5,481
- Total taxable income for FY: $63,333 + $5,481 = $68,814
| Income Component | Amount | Tax Applied |
|---|---|---|
| Salary (8 months) | $63,333 | Marginal rate on cumulative income |
| Annual leave payout | $5,481 | 30% (income $45,001–$135,000 bracket) |
| Medicare levy (2%) | $68,814 × 2% | $1,376 |
| Tax on leave payout (approx.) | ~$1,644 | After-tax payout: ~$3,837 |
James's entire income for the year falls in the 30% bracket, so his leave payout is effectively taxed at 30% plus 2% Medicare levy. His $5,481 payout nets him approximately $3,837 after tax.
Does Annual Leave Payout Affect Other Obligations?
Yes — receiving an annual leave payout on top of your regular salary can affect several other tax and financial obligations:
- HECS-HELP repayments: Your annual leave payout is included in your repayment income. If the total pushes you above the $67,000 threshold for FY 2025-26, you'll owe a compulsory HECS repayment on the excess. Use our HECS-HELP Calculator to estimate.
- Medicare Levy Surcharge (MLS): If your total income exceeds $101,001 and you don't have private hospital cover, the MLS kicks in at 1%–1.5%. A leave payout could tip you over this threshold. Check with our Medicare Levy Calculator.
- Low Income Tax Offset (LITO): LITO provides up to $700 in tax relief but phases out between $37,500 and $66,667. If your total income (including the payout) exceeds $66,667, you lose the full LITO benefit.
- Superannuation: Annual leave payouts on termination are generally not considered ordinary time earnings for the purpose of SGC. This means your employer typically does not need to pay super contributions on your unused leave payout. Confirm with your employer's payroll team. See our Superannuation Calculator.
Timing Your Payout to Minimise Tax
Because annual leave payouts are taxed as ordinary income, the timing of when you leave a job can significantly affect how much tax you pay. Here are a few strategies to consider:
Leave early in the financial year
If you resign at the very start of the financial year (e.g., July or August), you'll have earned relatively little salary so far. The leave payout may fall into a lower tax bracket — especially if you're also taking time off before starting your next job.
Use salary sacrifice before your departure
If you know you're leaving in a few months, making extra pre-tax super contributions through salary sacrifice can reduce your taxable income for the year — potentially keeping the leave payout in a lower bracket. Our Salary Sacrifice Calculator can help you model this.
Take some leave before you resign
Instead of having your leave paid out, you can take it as actual leave before your last day. While this doesn't reduce the amount you're paid, it means the payments are spread out over the leave period and may be withheld at a more favourable rate by your employer's payroll system.
Request a withholding variation from the ATO
If you expect your total income for the year to be lower than your employer assumes (e.g., you won't be working for the rest of the year), you can apply to the ATO for a reduced withholding rate on the lump sum. This prevents over-withholding and waiting until tax time to get a refund.
Annual Leave Payout vs Other Termination Payments
When you leave a job, you may receive several different types of payments at once. It's important to understand how each is taxed:
| Payment Type | Tax Treatment | Super Payable? |
|---|---|---|
| Unused annual leave | Marginal rate (or 32% cap pre-1993) | Generally no |
| Unused long service leave (post-1993) | Marginal rate | Generally no |
| Notice in lieu of notice | Marginal rate (ordinary income) | Yes |
| Genuine redundancy payment | Tax-free up to threshold, then ETP rates | No |
| Employment Termination Payment (ETP) | Up to 32% within ETP cap | No |
If you're receiving multiple payment types at once, the withholding calculations can become complex. Your employer's payroll team should handle this correctly, but it's worth reviewing your final payslip carefully and consulting a registered tax agent if anything looks unclear.
Summary: Key Takeaways
- Unused annual leave paid out on termination is taxed at your marginal income tax rate for the year
- Leave accrued before 18 August 1993 has a concessional maximum rate of 32%
- The payout is added to all other income earned in the financial year — it can push you into a higher bracket
- Super contributions (SGC) are generally not payable by your employer on annual leave payouts at termination
- HECS-HELP repayments and Medicare Levy Surcharge may be affected if the payout lifts your total income
- Timing your departure or using salary sacrifice can reduce the effective tax rate on your payout
Related Calculators
- Take-Home Pay Calculator — Model your full annual after-tax income
- Income Tax Calculator — Understand your marginal and effective tax rates
- Medicare Levy Calculator — Check if the Medicare Levy Surcharge applies to you
- HECS-HELP Calculator — Estimate your study loan repayment for the year
- Salary Sacrifice Calculator — Reduce taxable income before your final payout
- Superannuation Calculator — See how super is calculated on your regular earnings
This article is for general information only and does not constitute tax advice. Tax rules can be complex and individual circumstances vary. Please consult a registered tax agent or financial adviser for advice specific to your situation. All figures are based on ATO guidelines for FY 2025-26.
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Sarah Chen, CPA
Certified Practising Accountant · 10+ years in Australian tax advisory
This article has been reviewed by Sarah Chen to ensure accuracy and alignment with current ATO guidelines. Sarah is a CPA with over a decade of experience in Australian personal tax, superannuation, and payroll compliance.
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