Tax on a gratuity, taxed in one year or spread back.
Lower total tax
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Taxed in one year
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With relate-back
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Your breakdown
Updates live as you type| Step | Taxed in one year | With relate-back |
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What the relate-back election actually does
A gratuity paid when a fixed-term contract ends is taxable income, the same as salary. The reason people get excited about the relate-back election is the hope that spreading the lump back over the contract years dodges some tax. It can, but not always, and understanding when is the whole point of this page. Relate-back asks the Inland Revenue Department to treat the gratuity as if it had been earned evenly across the period it relates to, up to 36 months, and recompute each affected year. The benefit shows up only when the lump, dropped into one year, would push that year into a higher progressive band than the spread-out version reaches.
This tool runs both calculations side by side: the gratuity taxed entirely in the final year on top of that year's salary, against the gratuity sliced evenly across every contract year. It then reports whichever is lower. If they match, the election buys you nothing, and the tool says so plainly rather than pretending otherwise.
A three-year contract, $300,000 gratuity
Using the calculator's defaults, a salary of $500,000 a year, a basic allowance of $132,000, and a $300,000 gratuity at the end of a three-year contract, both methods land on exactly $175,680. That surprises people, so here is why. After the allowance, a $500,000 salary already sits well inside the flat top progressive band the calculator applies. Whether you add the full $300,000 in year three or $100,000 to each of three years, the extra income is taxed at the same top marginal rate either way, so the totals are identical. Relate-back is not a discount; it is a rate-arbitrage tool, and there is no rate gap to arbitrage here.
The bars below make the tie visual. Two equal columns, because at this salary level the marginal rate never changes between the two methods.
When the election is worth claiming
Flip the inputs to a lower annual salary and a larger gratuity, say a $300,000 salary against a $1.2 million gratuity over three years, and the picture changes. The $1.2 million dropped into one year is taxed steeply, while spreading $400,000 across each year keeps more income in the cheaper 2, 6, 10 and 14 percent bands. There the election produces a real saving. The rule of thumb: relate-back helps most when your normal salary is modest relative to the gratuity, and helps least when your salary already fills the top band. The band figures and rates here are the values this calculator applies for 2025/26; check the current bands and the 36-month limit with the IRD, because the election has procedural deadlines.
Common questions
Is a contract-end gratuity the same thing as long service payment?
No. A contractual gratuity is a reward written into your employment contract and is fully assessable to salaries tax. Statutory long service payment and severance under the Employment Ordinance follow different rules and a different formula, and the genuinely statutory portion is generally not taxed. If your final payout mixes a contractual gratuity with a statutory entitlement, separate the two, because only the gratuity belongs in this calculator.
Do I have to ask for relate-back, or does the IRD apply it automatically?
You have to elect for it in writing, usually when you object to or query the assessment, and there is a time limit for making the election. The Inland Revenue Department does not spread the gratuity for you by default; it assesses the gratuity in the year of receipt unless you ask. Run both numbers first, and only bother with the paperwork if, as in the larger-gratuity case above, the spread version is genuinely lower.