Tax on Your Leave Payout When You Resign in South Africa

When you resign, the payout for your accumulated leave is taxed as normal remuneration at your marginal rate, through PAYE, in the month you receive it. It does not get the R550,000 tax-free lump sum treatment that applies to a retrenchment, because a resignation leave payout is not a severance benefit. That favourable table is reserved for lump sums paid because the employer ended the job for operational reasons, or on reaching age 55, death, ill health or incapacity.

So a leave payout on resignation is treated no differently from the salary you would have earned had you taken the leave. There is no special allowance and no tax-free slice.

Why resignation does not qualify for the R550,000 amount

SARS defines a severance benefit narrowly. It is a lump sum your employer pays because it is ending your employment due to its operational requirements, in other words a genuine retrenchment or redundancy, or a lump sum on reaching age 55, or on death, ill health or incapacity. A qualifying severance benefit is taxed on the retirement fund lump sum benefit table, where the first R550,000 you take across your lifetime is at 0%.

Resigning is a decision you make. It is not a retrenchment and it is none of the other grounds, so a resignation payout is not a severance benefit and never reaches that table. Even for someone who is retrenched, SARS is clear that the leave pay, notice pay and any pro-rata bonus do not form part of the severance benefit; they are taxed as normal remuneration. On resignation, the leave payout is that ordinary-income part with none of the severance part alongside it.

How the payout is taxed

Your leave payout is added to your other income for the year and taxed on the ordinary individual tax rates. The employer withholds PAYE on it, often applying to SARS for a tax directive so the withholding on the lump-sum portion is correct. Because our rates are progressive, the leave payout is effectively taxed at the marginal rate that sits on top of your existing income, which can push part of it into the next bracket.

A worked example

Take someone who resigns partway through the 2026 tax year. By the time they leave they have already earned R360,000 in taxable income for the year, and their final payslip includes a leave payout of R45,000. They are under 65.

Tax on the R360,000 already earned, using the 2026 table:

R42,678 + 26% x (R360,000 - R237,100) = R42,678 + 26% x R122,900 = R42,678 + R31,954 = R74,632. Less the primary rebate of R17,235 = R57,397.

Now add the R45,000 leave payout, taking taxable income to R405,000, which moves into the next bracket:

R77,362 + 31% x (R405,000 - R370,500) = R77,362 + 31% x R34,500 = R77,362 + R10,695 = R88,057. Less the primary rebate of R17,235 = R70,822.

Tax attributable to the leave payout = R70,822 - R57,397 = R13,425.

So the R45,000 leave payout carries R13,425 of tax, an effective rate of about 29.8%, because it straddles the 26% and 31% brackets. None of it is sheltered by the R550,000 severance amount, which simply does not apply here.

You can model the marginal-rate effect against your own income in the income tax calculator, and the bonus tax guide explains the same marginal-rate mechanics for any extra lump paid on top of salary.

Resign versus retrenched: the difference in one line

If you were retrenched instead of resigning, the picture would split. The severance benefit portion would go on the lump sum table with the first R550,000 at 0%, while the leave and notice pay would still be normal income. The retrenchment package article works through that split. On resignation there is no severance portion at all, so the whole leave payout is ordinary income.