Does annual leave payout gets higher tax upon resignation?

Hi All,

Is it true that annual leave payout incur higher tax? So it will push to the next tax bracket if you've substantial amt of leave balance ( say anywhere over a working month of 20 days balance)? If so do you get it back as per this thread.

Any comment will be appreciated.


  • +11 votes

    It has nothing to do with how much accrued leave you have. It may get taxed at a higher rate if it pushes you into the next income tax bracket. E.g. If you had earned $44k within the tax year and the payout takes you over $45k you will get taxed at 32.5% rather than 19% on all money paid out over the $45k. You would only get tax back if you were taxed too much.

    • +12 votes

      Extra tax only on the $ over the tax bracket.

      To be a few K 'extra' in tax it going up a bracket, it must be a fair chunk of $ ( eg pushed over 45k, difference between 32.5 and 19 percent for the amount over 45k)

      • +19 votes

        It's shocking how many people don't understand how tax works.

        • +7 votes

          It’s certainly quite shocking without being rude

          So many people think you earn $1 over the bracket and you now must pay %5 extra tax on your entire amount. Seriously come on

          FWIW the mls and private health rebate behave this way and I went over by 100 bucks and lost 400

        • +2 votes

          Yeah I know - people simply don't understand the concept of marginal tax rates. "hey I don't want to earn an extra $20k a year cause that will put me into the next tax bracket"…. derp.

          • -7 votes

            @lunchbox99: It did used to be that way, so can understand that some people who aren't that financially literate might not realise it has changed.

            • +4 votes

              @djkelly69: No it didn't.

            • +1 vote

              @djkelly69: Lol who told you that? Personal income tax as we know it levied since 1915. Even then it was progressive brackets

        • -4 votes

          Lol I know how it works, I'm not an expert but that's why we went to an accountant. It was nearly half a years worth of pay as it was his annual leave, then long service leave. Not sure why I got down voted when we got the tax bill to show for it lol. No mls as I don't work and we fall under the 180k

      • +2 votes

        The government could streamline the tax system by introducing a flat rate on income taxes. E.g a 10% or 20% flat rate and removing deductions altogether.


          Wouldn't work when comparing employees to sole traders. Or at least it wouldn't be fair to someone

        • -1 vote

          The government could streamline the tax system by introducing a flat rate

          A terribly regressive measure that fails to account for the marginal utility of money, amongst other issues. All because a few people don't understand how marginal rates work? No thanks.

          removing deductions altogether

          This one I could get behind but I don't see it happening.

          • -1 vote

            @abb: FIAT have no other utility than to transfer wealth from one entity to another. The current system is designed so that FIAT flows from the bottom to the top.


              @whooah1979: So you want to make it do that more?


                @abb: I don’t understand your question. Please explain.


                  @whooah1979: A flat tax rate will worsen inequality


          10-20% flat gives Clive Palmer about 80% tax cut!


    I would suggest you take the leave as this way you don't need to get worried you are going to be Taxed more.

  • +10 votes

    If you get leave paid out in a lump, it is taxed as if you earn that all the time. But you don’t, so most of the extra tax will get refunded at tax time.

    Getting “pushed into another tax bracket” only applies to the bit over that bracket, not all your earnings. So it is nothing to fear, and is good news because it means you are getting more money.

  • +6 votes
    1. Your payout will be considered as taxable income for the year.
    2. If the timing of your payout is same as your last fortnightly pay, the PAYG tax withheld will be calculated as if you earn that figure every fortnight. E
      G. If the payout + last pay is $3000 before tax, then tax withheld will be calculated like you are earning a yearly salary of 78k (3k X 26 fortnights). Again, just how much tax is withheld out of that pay.
    3. Depending how much you earn by end of 30 Jun 21, you get some withheld tax back at tax return.
    4. We have a progressive tax system. Like what SBOB said earlier, you only pay higher tax for the $ over the threshold.

    Still confused? Contact your pay department

    • +2 votes

      Thanks for clearly spelling this out for people.

      Same thing happens for bonus's which is why you see them taxed at max amount and then you get alot back at tax time :)

  • +1 vote

    I've never been able to re-calculate how my employers work out withholding tax, but it'll wash out at year end when you do your tax return anyway.


      Your employer payroll system would use the tax table to calculate your tax withheld. This can be used for OP if he/she's knows final payout figure

      Again, just how much to withhold.. final tax return will reflex the real tax amount.


      Not too hard, should be able to google and find the weekly/fortnightly tax tables that is the basis


        I understand how it works, I've just never been able to come to the same number!

  • +3 votes

    Like others have said, it is your total taxable income that determines the amount of tax you'll have to a pay for a financial year, you may get a refund if your employer overpaid your taxes (e.g. when you get a higher than normal "lump sum" during a pay run).

    What I've personally observed is, each pay period is taxed by prorating your pay it into a 12 months - e.g if you earn $2000 per month, your prorated income for the FY is $24,000, however if you get a "bonus" in a pay run, say you get $4000 (as a one off) your FY income is seen as $48,000 for that pay run and taxed accordingly. You should be able to apply this concept to your annual leave or other lump sum income from your employer.

    What you may want to consider is, when you want to "cash out" the annual leave, would it be close to 2 FYs. If you are looking to change jobs, etc… around a FY it may benefit to get the $$ now or defer payment to next FY (or maybe no material benefit if your regular income is the same) depending on your situation.


    One thing to consider…
    If you encase your leave, you will not be paid super on that amount.

    • +1 vote

      It depends on your EBA or award.

      I get 9.5% SGA on my annual leave, LSL and performance bonus. When I finish up next year they will pay SGA on any leave balances, lump sums, etc.

      I can even take LSL and accrue more LSL while on leave. :-)