Redundancy Payment Tax Calculator Australia (FY 2025-26)

Being made redundant is stressful enough without having to decode the tax rules that come with it. The good news is that genuine redundancy payments receive some of the most generous tax treatment in the Australian tax system — a portion can be completely tax-free. This guide explains exactly how redundancy payments are taxed in FY 2025-26, what the tax-free threshold is, and how to estimate what you'll actually receive after tax.

What Is a Genuine Redundancy?

Not every job loss qualifies as a "genuine redundancy" in the ATO's eyes. For your payment to receive the concessional tax treatment, the ATO requires that:

• Your position was no longer required — the role itself was eliminated, not just you personally
• Your employer genuinely followed any relevant consultation obligations under a modern award or enterprise agreement
• The payment was made before your dismissal took effect
• You were dismissed — not resigned, retired, or reached a mandatory retirement age

If your situation doesn't meet these criteria, your entire payout may be treated as an Employment Termination Payment (ETP) instead and taxed accordingly — see the ETP section below. When in doubt, a registered tax agent can confirm which category applies to your situation.

The Tax-Free Threshold for Genuine Redundancy (FY 2025-26)

If your redundancy qualifies as genuine, a portion of your payment is completely tax-free. The ATO sets this threshold each financial year based on your years of completed service with the employer:

Only completed years of service count — partial years don't qualify. So if you've worked for 6 years and 11 months, only 6 years are used in the calculation.

Any redundancy payment up to this threshold is paid to you completely tax-free and is not included in your assessable income. This means it won't affect your HECS repayments, Medicare Levy Surcharge assessment, or Low Income Tax Offset calculations.

What Happens to the Amount Above the Tax-Free Threshold?

If your genuine redundancy payment exceeds the tax-free threshold, the excess is treated as an Employment Termination Payment (ETP). ETPs have their own concessional tax treatment — they are not taxed at your ordinary marginal rate.

The 32% cap rate is often lower than the marginal rate a high-income earner would otherwise pay on a lump sum — which is the ATO's way of recognising that redundancy is involuntary and shouldn't be excessively penalised. Use our Income Tax Calculator to compare your effective marginal rate.

Worked Example: How Redundancy Tax Is Calculated

Let's walk through a real-world scenario. Sarah has been employed at the same company for 8 years and is made redundant in November 2025. She receives a genuine redundancy payment of $70,000.

Sarah's effective tax rate on her entire $70,000 redundancy payment is just 3.4% — far lower than she would pay on ordinary income. This is the power of the genuine redundancy tax concession.

Other Payments You May Receive at Redundancy

Your final payment package at redundancy often includes several components, each taxed differently. Here's a summary:

Notice that unused annual leave and notice pay are taxed as ordinary income at your marginal rate — they don't receive the same favourable treatment as the redundancy component itself. If these amounts are significant, they could push your total taxable income into a higher bracket for the year. Check how the marginal brackets apply using our Income Tax Calculator.

Does Redundancy Pay Affect HECS, Medicare Levy, or Super?

This is one of the most commonly misunderstood aspects of redundancy payments. Here's the key breakdown:

Summary: Key Takeaways

• Genuine redundancy payments include a tax-free component: $12,524 + $6,264 per completed year of service (FY 2025-26)
• The amount above the tax-free threshold is taxed as an ETP at a maximum of 32% (or 17% if you're 55+) — not your marginal rate
• The ETP cap is $235,000 — amounts above this are taxed at your top marginal rate
• Annual leave, notice pay, and salary components are taxed as ordinary income at your marginal rate
• The tax-free redundancy amount does not count toward HECS repayment income or MLS calculations
• Your employer does not pay SGC on genuine redundancy payments or ETPs
• If you have a HECS debt, check whether your ordinary income components (annual leave, salary) push you above the $67,000 repayment threshold

This article is for general information only and does not constitute tax advice. Tax rules are 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.