Termination payment tax calculator

This calculator splits a termination payment into its tax categories and estimates the PAYG withholding. It covers the four things accountants are most often asked about when a client is made redundant or retires: the tax-free genuine redundancy amount, the employment termination payment (ETP) and its caps, unused annual leave, and unused long service leave.

It is built to answer the questions that can be worked out reliably from the payment details. Where the answer depends on the employee's whole year of income or on a tax table calculation the employer runs in payroll, it says so and stops.

The tax-free part of a genuine redundancy

A genuine redundancy payment or early retirement scheme payment is tax-free up to a limit: a base amount plus an amount for each complete year of service. Only the part above the limit is an ETP. The limit uses the amounts for the income year the payment is received.

Years of service means the number of whole years in the period of employment the payment relates to, so 9 years and 11 months counts as 9. The calculator asks for the start and termination dates and counts whole years, and you can override the result where service includes more than one period.

Only the amount paid because the position is genuinely redundant, above what the employee would have received for resigning on the same day, qualifies. Unused leave, notice paid out and super are not part of it. Section 83-175 of the Income Tax Assessment Act 1997 also requires that:

• the employee is dismissed before the earlier of reaching age pension age and any compulsory retirement age or service period in their employment
• a payment in a dismissal that is not at arm's length is no more than an arm's length amount
• there is no arrangement at the time to employ the person again after the dismissal.

The calculator asks you to confirm these. It cannot decide whether a role is genuinely redundant. The ATO's guidance notes that a dismissal is the employer's decision, and that a voluntary resignation, a dismissal for performance or discipline, or the end of a fixed-term contract is not a genuine redundancy.

ATO example: Moira

Moira started work on 3 July 2006 and was made redundant on 15 August 2023, with 17 complete years of service. Her redundancy pay was 2 weeks for each year at $2,000 a week, which is $68,000. Her tax-free limit for 2023–24 was $11,985 + ($5,994 × 17) = $113,883, so the whole $68,000 is tax-free and there is no ETP.

Employment termination payments

The taxable component of a life benefit ETP is assessable, with a tax offset that limits the rate of tax on the amount up to the applicable cap. Above the cap, the top marginal rate applies.

Preservation age is 60 for anyone born after 30 June 1964. Anyone born earlier has already reached it.

Which cap applies

The whole-of-income cap is $180,000, not indexed, reduced by the employee's other taxable income for the year. Which cap applies depends on the type of ETP.

• ETP cap only: the part of a genuine redundancy or early retirement scheme payment above the tax-free limit, invalidity payments, and compensation for personal injury, unfair dismissal, harassment or discrimination.
• The smaller of the ETP cap and the whole-of-income cap: everything else, including golden handshakes, non-genuine redundancy payments, severance pay, gratuities, payment in lieu of notice, and unused sick leave or rostered days off.

Where both types are paid, the ETP cap-only part is dealt with first, and an earlier ETP for the same termination uses up part of the ETP cap.

Withholding from 1 July 2026

Schedule 11 sets withholding for payments made from 1 July 2026 at 17% up to the cap for an employee at or over preservation age, 32% under preservation age, and 47% above the cap. These rates include the 2% Medicare levy. Withholding is rounded to the nearest dollar.

ATO example: Alec

Alec is 30 and is made redundant in 2026–27 after 5 years of service. He receives $48,000 of genuine redundancy pay and a $17,678 gratuity, and has been paid $140,000 in salary and wages.

The gratuity would have been taxed very differently if Alec had earned $180,000 or more in the year. His whole-of-income cap would be nil and the whole gratuity would be withheld at 47%. The genuine redundancy part would not change, because it is not subject to the whole-of-income cap.

Unused annual leave

Unused annual leave paid on termination, including leave loading, is assessable and is not part of the ETP. A tax offset limits the rate of tax to 30% where:

• the leave is paid in connection with a genuine redundancy, an early retirement scheme or an invalidity payment, for all of the leave, whenever it accrued, or
• for any other termination, the leave relates to employment before 18 August 1993.

Anything else is taxed at marginal rates with the employee's other income. For withholding, Schedule 7 applies 32% to the concessional amounts, and the employer uses a marginal rate method from the regular tax table for the rest.

Unused long service leave

Long service leave is split by when it accrued.

The calculator apportions a payment between the three periods by days, which is right for employment that was wholly full-time or wholly part-time. Mixed full-time and part-time service, and leave taken at less than full pay, need the separate rules in sections 83-110 and 83-115 and are not covered.

ATO example: Norman

Norman retires on 31 December 2026, not because of redundancy. His long service leave is $780 for the period before 16 August 1978, $6,420 for 16 August 1978 to 17 August 1993, and $14,820 after that. The 1978 to 1993 part is withheld at 32%, which is $2,054. The employer then runs the marginal rate method on $14,859, which is 5% of the pre-1978 part ($39) plus the post-1993 part. The calculator gives you the $2,054 and the $14,859, and tells you the rest needs the weekly tax table. In the ATO's example, that step adds $4,732.

What the calculator gives you

• The tax-free genuine redundancy or early retirement amount, and the ETP part above it
• The split of ETPs into ETP cap-only and smaller-cap amounts, and how much of each falls under its cap
• The maximum tax rate on each part, based on the employee's age on 30 June
• Schedule 11 withholding for ETPs paid from 1 July 2026
• Schedule 7 withholding for the 32% leave amounts, and the amount that goes through the marginal rate method
• The reporting category for each part, such as lump sum A, B or D

What it will not do

• Decide whether a redundancy is genuine or work out the amount the employee would have received on resignation. You enter both.
• Payments received before 1 July 2023 or after 30 June 2027.
• Withholding for ETPs paid before 1 July 2026. The tax-free amount, caps and maximum rates are still shown.
• Marginal rate withholding, and the employee's final tax on assessment.
• Death benefit ETPs, transitional ETPs, foreign residents, no-TFN withholding, payments made more than 12 months after termination, or foreign termination payments.
• Super, including amounts paid in lieu of super, and employer super on termination pay.

Termination pay is also a payroll event for the employer, with STP reporting, payslips and super on some components. Our Payday Super guide covers how super works on payments made from 1 July 2026. For late or missed super, see the super guarantee charge calculator.