How unused leave is taxed when you leave a job
When you leave a job, your unused annual and long service leave is paid out — and taxed. Here is how much you keep, and how a genuine redundancy changes the rate.
When you finish up at a job, any unused annual leave and long service leave is paid out in your final pay. It is welcome money, but it is taxed — and how it is taxed depends on why you are leaving. Here is what to expect in 2026-27.
On resignation: taxed at your marginal rate
If you resign or your job simply ends, your unused leave is added to your income for the year and taxed at your marginal rate. Because a leave payout is a lump sum stacked on top of your salary, it is taxed at your highest bracket — so a big payout can lose a large slice to tax.
On genuine redundancy: a capped rate
If you are made genuinely redundant, unused annual and long service leave gets concessional treatment: the tax rate is capped at 32% (30% plus the Medicare levy). For higher earners whose marginal rate is 39% or 47%, that cap is a meaningful saving.
Worked example
Tom earns $150,000 and is owed $15,000 in unused leave. On resignation, that $15,000 is taxed at his 39% marginal rate — about $5,850 — leaving roughly $9,150. If instead it is a genuine redundancy, the rate is capped at 32%, so the tax is about $4,800 and he keeps around $10,200 — over $1,000 more, purely because of the concessional cap.
Leave is separate from redundancy pay
Your unused leave payout is not the same as redundancy pay. Redundancy pay has its own tax-free treatment; unused leave is taxed under these separate rules. Both can appear in the same final pay.
Estimate the tax on your leave
See what you keep from an unused leave payout, with a genuine-redundancy toggle, for 2026-27.
This is general information, not personal advice — leave accrued before certain dates can be taxed differently. For the redundancy payment itself, see our guide to how a redundancy is taxed.
Frequently asked questions
How is unused annual leave taxed when I resign?
It is added to your income for the year and taxed at your marginal rate. Because it is a lump sum on top of your salary, it is taxed at your highest bracket, so a large payout can be taxed heavily.
Is leave taxed less if I am made redundant?
Yes. On a genuine redundancy, unused annual and long service leave is taxed at a concessional rate capped at 32% (30% plus Medicare). If your marginal rate is higher than that, the cap saves you money.
Is my leave payout part of my redundancy pay?
No — they are separate. Redundancy pay has its own tax-free limit; unused leave is taxed under its own rules. Both may appear in your final pay.
Why was so much tax withheld from my leave payout?
Employers often withhold on lump sums at a high rate. That is not necessarily your final tax — if too much is withheld, you receive the difference back when you lodge your return.