Tax on a leave pay-out added to your annual income at marginal rates.
Net leave pay-out
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Tax on pay-out
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Effective rate
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Why a leave pay-out feels overtaxed
You resign, and the company pays out the leave days you never took. The amount looks generous on the offer letter and disappointing in your bank account, and most people blame a special leave tax. There is none. Accumulated leave paid out is ordinary remuneration in the eyes of SARS, taxed exactly like salary. What stings is that it stacks on top of a full year of earnings, so it is taxed at your marginal rate, the rate on your highest rands, which is usually well above the average rate you pay across your whole salary. This calculator shows that gap plainly by taxing the pay-out as the top slice of your annual income.
The method is the honest one. It calculates your tax with the leave pay-out included, calculates it without, and the difference is the tax the pay-out actually triggers. That isolates the true cost rather than applying some misleading flat percentage.
R30,000 of leave on a R450,000 salary
Suppose you are under 65, earn R450,000 a year, and receive a R30,000 leave pay-out. Your salary alone already pushes your top rands into the 31 percent band under the brackets this calculator applies. Adding R30,000 keeps you in that same band, so the whole pay-out is taxed at 31 percent. The extra tax is R9,300 and the net you keep is R20,700, an effective rate of 31 percent on the pay-out even though your average rate across the full salary is lower.
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The chart shows the split between what you keep and what SARS takes.
When the pay-out tips you into a higher bracket
The example sat neatly inside one band, but leave pay-outs do not always behave. If your salary ends near the top of a bracket, a large pay-out can straddle two bands, with part taxed at your old rate and part at the next rate up. Long-serving employees with months of accrued leave feel this most, because the lump sum can be substantial. The tool handles the split automatically, but it is worth understanding why your colleague with a smaller salary kept a bigger share of an identical pay-out: they were further from the next bracket.
A practical note on timing and structure. Leave paid out on resignation is taxed as remuneration in the month you receive it, and your employer applies PAYE then, so there is rarely room to plan it away. Do not confuse this with a severance or retrenchment lump sum, which is taxed under a separate and more favourable SARS table with a tax-free portion. If you are being retrenched, the leave component and the severance component are taxed differently, and lumping them together overstates the tax you will pay on the severance.
Is leave pay taxed differently from a bonus?
No, both are remuneration taxed at your marginal rate. A bonus and a leave pay-out are each added to your annual income, so if they arrive in the same year they stack together and can push more of your income into a higher band. The tax treatment is identical even though they feel like different kinds of money.
Why is my effective rate higher than my normal tax rate?
Because the pay-out is taxed at the margin. Your normal payslip shows an average rate blended across all your income, including the lower bands and rebates. The pay-out sits entirely on top, in your highest band, so it is taxed at that higher marginal rate, not the comfortable average.
Can I avoid tax on a leave pay-out by taking the leave instead?
Taking the leave as paid days off means you are paid your normal salary for those days, which is taxed anyway, so there is no tax saving as such. The real benefit of using leave is rest and avoiding a lump sum that nudges you toward a higher bracket in a single month. Whether to bank leave or take it is a lifestyle and cash-flow decision more than a tax one.