If you take leave, are stood down or lose your job because of COVID-19 there are different tax consequences for payments you may receive from your employer.
If you take leave or are temporarily stood down, your employer may pay you regular payments or make a one-off payment.
Your employer may give your payment a special name such as:
- stand-down payment
- COVID-19 payment
- pandemic allowance.
Regardless of what your employer calls these payments, we treat them the same as your usual payments from your employer.
This means you:
- declare them as wages and salary on your tax return
- pay tax on them at your normal marginal tax rate.
This treatment applies regardless of whether the payments are funded by the JobKeeper Payment scheme.
If you are receiving less than your normal pay, you will have less tax withheld on the payment. This will occur automatically, so you don’t have to do anything.
If your employment is terminated you may receive payments from your employer.
These payments can have up to 3 parts:
- concessionally taxed (taxed at a lower rate than your marginal tax rate)
- taxed at your usual marginal tax rates.
The tax rate depends on the type of payment. The tax return instructions will explain how to include these amounts in your tax return.
You have a genuine redundancy if you haven’t reached your pension age and your job is abolished. This means that your employer has made a decision that your job no longer exists and your employment is terminated.
Your genuine redundancy payment is:
- tax-free up to a limit – based on your years of service
- concessionally taxed as an employment termination payment (ETP) above your tax-free limit
- taxed at your usual marginal tax rate for any amount above certain caps.
Your employer will report the tax-free amount as a lump sum on your PAYG payment summary – individual non-business or income statement.
For more information, read Employment termination payments – for employees
Upon termination of your employment, your employer will pay out unused annual leave and long service leave.
Your employer will separately record these on your PAYG payment summary – individual non-business or income statement as either a lump sum A or B.
These payments may be concessionally taxed or taxed at your marginal tax rate, depending on the:
- type of termination
- date of accrual
- type of leave.
For more information, read Taxation of termination payments
Your employer may pay you other amounts that are not redundancy benefits or accrued leave. Examples may include payments for:
- leaving voluntarily
- severance pay
- having your contract terminated.
We treat these payments as an ETP, which is generally taxed at a lower rate than your normal income, provided the payment does not exceed certain caps.
If your employment is terminated because of ill-health, or part of your payments relate to your employment before 1 July 1983, part of your payment may be exempt from tax.
If you find a new job, you are entitled to claim the tax-free threshold to reduce the amount of tax that is withheld from your pay. When you start a new job, your employer will give you a tax file number declaration to complete.
For information on claming the tax-free threshold, refer to Income from more than one job.
Your employer may provide you an incentive or reward for receiving your COVID-19 vaccination. The tax implication may differ depending on the type of incentive or reward you receive.
Other concessions are available to provide help due to the effects of COVID-19. These include:
- Early release of superannuation
- Reducing the superannuation minimum drawdown rates
- JobSeeker payments – see Services AustraliaExternal Link
- Economic support payments – see Services AustraliaExternal Link