• Holiday pay, long service leave and employment termination payments

    Employees who continue working for you

    You must include holiday pay (including any leave loading) and long service leave payments as part of normal earnings, except when they are paid on termination of employment.

    For more information, see Withholding from annual and long service leave for continuing employees.

    Employees who stop working for you

    This schedule does not cover any lump sum payments made to an employee who stops working for you.

    If an employee has unused annual leave, leave loading or long service leave, refer to Tax table for unused leave payments on termination of employment.

    Any other lump sum payments may be employment termination payments, refer to Tax table for employment termination payments.

    Do not withhold any amount for HELP, SSL, TSL or Financial Supplement debts from lump sum termination payments.

    Claiming tax offsets

    If your employee chooses to claim their entitlement to a tax offset through reduced withholding, they must provide you with a Withholding declaration.

    To work out the employee’s annual tax offset entitlement into a weekly, fortnightly, monthly or quarterly amount, refer to Tax offsets.

    Do not allow for any tax offsets if any of the following apply:

    • where no tax-free threshold is claimed
    • you are using foreign resident rates
    • when an employee does not provide you with their TFN.

    Medicare levy adjustment

    To claim the Medicare levy adjustment available to some low income earners with dependants, your employee must lodge a Medicare levy variation declaration with their Tax file number declaration.

    Some employees may be liable for an increased rate of Medicare levy or the Medicare levy surcharge as a result of new income tests. They can lodge a Medicare levy variation declaration, requesting you to increase the amount to be withheld from their payments.

    Work it out

    Medicare levy adjustment

    Last modified: 16 Sep 2016QC 50006