The Genuine Redundancy Tax-Free Limit, Explained
"Tax-free redundancy" is real, but only up to a limit that grows with your service. Here is the formula and what happens above it.
The formula
For 2026-27, the tax-free amount of a genuine redundancy payment is:
$13,598 + $6,801 × your completed years of service
Only completed years count, so 5 years and 11 months is 5 years. The table shows the limit at a few common lengths of service.
| Years of service | Tax-free limit |
|---|---|
| 1 | $20,399 |
| 5 | $47,603 |
| 10 | $81,608 |
| 22 | $163,220 |
The figures are indexed and change every 1 July, so always check the amount for the year in which you are made redundant.
What counts as a genuine redundancy payment
A payment qualifies when your job is no longer needed and the dismissal is a genuine redundancy. In practice, your employer has decided the role will not continue, rather than letting you go for another reason.
Some payments look similar but do not qualify. Payments for normal retirement, dismissal for conduct and a resignation are not genuine redundancy payments. They are ordinary employment termination payments (ETPs) and have no tax-free part. If you are unsure how your payment has been classified, ask your employer in writing, because the label on your payment summary drives the tax treatment.
Above the limit: the ETP part
Any amount above your tax-free limit is an employment termination payment. How it is taxed depends on your age and the size of the payment:
- 32% if you are under your preservation age, up to the $270,000 ETP cap.
- 17% if you are at or over your preservation age, up to the same cap.
- 47% on any amount above the $270,000 cap.
Because a genuine redundancy payment is an "excluded payment", the $180,000 whole-of-income cap that catches other ETPs does not reduce this one.
Preservation age in 30 seconds
Preservation age is the age at which you can access your superannuation. It ranges from 55 to 60 depending on your date of birth. You do not need to look at anything else about it here: for redundancy tax, it only decides whether your ETP excess is taxed at 32% or 17%.
Two worked examples
Example A: 5 years of service, $85,000 salary
The redundancy pay under the NES scale is $16,346.15. The tax-free limit for 5 years is $47,603. The payment is well below the limit, so it is entirely tax-free as a redundancy component.
Example B: 22 years of service, $3,000 a week, plus a $200,000 top-up
The NES redundancy pay is 12 weeks at $3,000, which is $36,000. Add a $200,000 top-up under an agreement and the total is $236,000. The tax-free limit for 22 years is $163,220, so the excess is $72,780. Assuming the person is under preservation age, that excess is taxed at 32%, which is $23,289.60.
Both examples are estimates and ignore other income. Use the Redundancy Pay Calculator to test your own situation, or see the Final Pay Calculator for the whole of your final payslip.
Why completed years matter
The formula rewards each completed year of service with $6,801 of extra tax-free room, on top of a base amount of $13,598. A part year does not count, so someone with 9 years and 11 months of service uses the 9-year limit. If you are close to a service anniversary, ask your employer whether your end date could affect your tax-free amount as well as your redundancy pay. Your employer works out the tax-free amount, and it is shown on your payment summary, so you can check it against the formula above.
Common mistakes to avoid
- Assuming the whole payment is tax-free. Only the part up to the limit is. Large top-ups and agreement payments can push you over it.
- Treating every exit as a redundancy. A resignation, a retirement or a dismissal for conduct has no tax-free part, even if your employer pays you a lump sum.
- Counting the wrong amounts. The limit applies to your redundancy payment. Notice, annual leave and long service leave are separate parts of your final pay with their own tax treatment.
- Using last year's figures. The limits are indexed each 1 July, so a number from an older article may be out of date.
What to check on your payment summary
After you leave, your employer reports your payments to the ATO and gives you a payment summary or income statement. Look for the redundancy amount, the tax-free part and any ETP shown separately. If the tax-free part looks lower than the formula suggests, ask payroll to explain how they classified the payment and which year of service they used. If the figure is still wrong, you can raise it with the ATO or a registered tax agent. For the rest of your final payslip, see our final pay guide, and for how we calculate our estimates see the methodology page.
Frequently asked questions
Is my redundancy payment really tax-free?
Part of it can be. A genuine redundancy payment has a tax-free amount of $13,598 plus $6,801 for each completed year of service in 2026-27. Anything up to that limit is tax-free, and anything above it is taxed as an employment termination payment.
What happens if my payment is bigger than the tax-free limit?
The excess is an employment termination payment (ETP). It is taxed at 32% if you are under preservation age, or 17% at or over it, up to the $270,000 ETP cap. Amounts above the cap are taxed at 47%.
Does a voluntary redundancy get the tax-free amount?
Yes, if it is a genuine redundancy. Voluntary redundancies can qualify for the tax-free amount, as long as your job is no longer needed and the dismissal is a genuine redundancy.
What is preservation age?
It is the age at which you can access your super, between 55 and 60 depending on your date of birth. For redundancy tax it only decides whether your ETP excess is taxed at 32% or 17%.
When do the tax-free limits change?
The limits are indexed and change every 1 July. The figures on this page apply to the 2026-27 financial year.
Sources
- Australian Taxation Office: genuine redundancy payments and the tax-free component
- Fair Work Ombudsman: redundancy
This guide gives general information and estimates only. It is not legal, tax or financial advice. Your award, agreement or contract may give you more than the minimums described here.