Redundancy tax-free threshold 2026: real numbers

If you are sitting in a call centre, claims team, or admin seat right now wondering whether your job is safe, this page is for you.

Redundancy rules changed on 1 July 2026. The tax-free cap on genuine redundancy payments was indexed upward, which means more of your payout may be sheltered from tax than it would have been a year ago. That is worth understanding before anything happens, not after.

Take the free three-minute Career Change Check at changingcareers.com.au/assessment to see roles people from your kind of work moved into, before you read the rest of this.

What a genuine redundancy payment actually is

Not every job loss qualifies. The Australian Taxation Office (ATO) defines a genuine redundancy payment as one made because your job no longer exists, not because of your performance or conduct.

If it qualifies, part of the payment is tax-free. The rest is taxed at a concessional rate, which is lower than your normal marginal rate.

The Fair Work Ombudsman sets out the minimum redundancy entitlements under the National Employment Standards (NES). Your award or enterprise agreement may give you more. Check fairwork.gov.au for the current NES table.

The tax-free cap: how it is structured

The tax-free amount is not a flat figure. It is calculated using two components:

A base amount that applies to everyone
A per-year-of-service amount multiplied by your completed years with that employer

Both figures are indexed each financial year. The 1 July 2026 indexation increased both components.

The 2026-27 figures: a base amount of A$13,598, plus A$6,801 for each completed year of service. The ETP cap is A$270,000. Source: ATO, Employment termination payments, Table 20, last updated 17 April 2026. For 2025-26 the figures were A$13,100 and A$6,552.

What we can tell you is the formula:

Tax-free amount = base amount + (years of service x per-year amount)

So if you have been with your employer for 8 years, you multiply the per-year figure by 8 and add the base amount. Anything above that total is taxed at the lower concessional rate, not your full marginal rate.

A worked example (2026-27 figures)

Here is how the formula works on the real 2026-27 figures, for someone under 60. It is an estimate, so confirm your own case with the ATO or a registered tax agent.

The 2026-27 base amount is A$13,598 and the per-year amount is A$6,801.

You have worked for your employer for 6 years
Your tax-free amount = A$13,598 + (6 x A$6,801) = A$54,404
If your redundancy payout is A$60,000, then A$54,404 is tax-free and A$5,596 is taxed at the concessional rate of 32 per cent, which is A$1,790.72

The concessional rate caps at 32 per cent (including Medicare levy) for most people. Compare that to a marginal rate of 39 or 47 per cent for higher incomes and you can see why the distinction matters.

What counts toward your total payout

Your redundancy payout is typically made up of several components. Not all of them attract the tax-free treatment.

Counts as a genuine redundancy payment (potentially tax-free up to the cap):

The severance or redundancy component itself

Taxed separately at normal rates:

Unused annual leave
Unused long service leave
Payment in lieu of notice (in most cases)

This is a common source of confusion. People see a large total figure and assume the whole amount is tax-free. It is not. Only the genuine redundancy component qualifies.

A tax agent or accountant can split the payment correctly on your tax return.

Fair Work minimum redundancy pay scale

The Fair Work Act sets minimum redundancy pay based on years of continuous service. This is separate from the tax question. The minimums under the NES are:

Years of service	Minimum weeks of redundancy pay
1 to less than 2	4 weeks
2 to less than 3	6 weeks
3 to less than 4	7 weeks
4 to less than 5	8 weeks
5 to less than 6	10 weeks
6 to less than 7	11 weeks
7 to less than 8	13 weeks
8 to less than 9	14 weeks
9 to less than 10	16 weeks
10 or more	12 weeks

Source: Fair Work Ombudsman (fairwork.gov.au)

Note the drop at 10 or more years. That is not a typo. It is in the NES. Your award or enterprise agreement may provide a higher amount, so check your specific instrument.

Small business employers (fewer than 15 employees) are exempt from the NES redundancy pay provisions in most cases.

Why this matters more now

Call centre, claims processing, scheduling, and basic admin roles are among the occupations with the highest rates of task automation. You do not need to be in crisis to think about this. The workers who come out of a redundancy in the best position are the ones who had already started planning.

That planning has two parts: understanding what you are owed if it happens, and knowing where you would go next.

The four questions below give you a starting point for the second part.

Four questions to ask about what comes next

1. Skills you have already got Call centre and claims workers carry transferable skills: complaint resolution, system navigation, documentation, and managing stressed customers. These map directly to roles in customer success, NDIS coordination, and health administration.

2. What the demand data says Jobs and Skills Australia rates each occupation on its yearly Occupation Shortage List, nationally and by state. The ABS Labour Force data (abs.gov.au/statistics/labour) and Your Career (yourcareer.gov.au) both publish occupation-level employment projections. Use them.

3. Roles within reach A role is within reach if the skill gap is closeable in under 12 months without quitting your current job. Many TAFE qualifications relevant to health admin and community services are now available fee-free in most states.

4. Your safety net Understand your redundancy entitlements now, not after the letter arrives. Know your annual leave balance, your years of service, and whether your award provides above-NES redundancy pay.

What to do before any redundancy is announced

Check your current award or enterprise agreement on the Fair Work website. Confirm whether your redundancy entitlements exceed the NES minimums.
Note your start date and calculate your completed years of service.
Check your annual leave balance. This is paid out separately and at your normal rate.
Speak to a registered tax agent before you receive the payment if possible. They can advise on how to structure the payment and whether salary sacrificing superannuation from the concessional component is worth considering.
Work through the four questions above now, while you still have income and time.

What to do if the letter has already arrived

Do not sign anything the same day. You generally have time to review.
Ask for the payment breakdown in writing: what is the redundancy component, what is annual leave, what is notice.
Contact the Fair Work Ombudsman if you believe the amount is below the NES minimum.
Engage a tax agent to lodge your return correctly. A genuine redundancy payment is reported separately on your tax return (it does not go in the normal salary field).
Keep all your termination paperwork. Your employer reports the payment on your income statement, split into its components, and you use that when you lodge. If the split looks wrong, call the ATO on 13 28 61.

Free resources

Fair Work Ombudsman redundancy calculator: fairwork.gov.au
ATO genuine redundancy information: ato.gov.au (search "genuine redundancy")
Your Career occupation projections: yourcareer.gov.au
Free TAFE course finder: yourcareer.gov.au

And if you want to know which roles you are already close to before anything happens, take the free three-minute Career Change Check at changingcareers.com.au/assessment.

Frequently asked questions

What is the tax-free threshold for redundancy payments in 2026?

The tax-free amount for genuine redundancy payments is indexed each financial year by the ATO. It is calculated as a base amount plus a per-year-of-service amount multiplied by your completed years with the employer. For 2026-27 it is A$13,598 plus A$6,801 for each completed year of service, as published on the ATO's Employment termination payments page.

Is annual leave paid out tax-free when I am made redundant?

No. Unused annual leave is taxed separately at your normal marginal rate (with some concessional treatment in certain cases). Only the genuine redundancy component qualifies for the tax-free cap. Payment in lieu of notice is also generally taxed at normal rates. A registered tax agent can help you split the components correctly on your return.

What is the minimum redundancy pay under Fair Work in Australia?

The National Employment Standards set minimum redundancy pay based on completed years of continuous service, starting at 4 weeks for 1 to 2 years and rising to a maximum of 16 weeks for 9 to 10 years. Your award or enterprise agreement may provide more. Small business employers with fewer than 15 employees are generally exempt. Check fairwork.gov.au for the current table.

Does the tax-free cap apply to all redundancy payments?

Only payments that qualify as a 'genuine redundancy' under the ATO definition receive the tax-free treatment. The payment must be made because the job no longer exists, not due to performance or conduct. Payments above the tax-free cap are taxed at a concessional rate capped at 32 per cent including Medicare levy, which is lower than the top marginal rates.

What should I do if I think my redundancy payout is below the legal minimum?

Contact the Fair Work Ombudsman. You can use their online tools at fairwork.gov.au to check the minimum entitlement for your years of service and industry award. The Ombudsman can investigate underpayments at no cost to you.

Redundancy payout tax-free threshold 2026: what changes on 1 July