Sell back leave or take terminal leave?

Your last months of military pay don't arrive the way the rest did. How you use your leave, what's withheld and any debt on your account decide how much lands, and when.

If you're getting out in the next few months, your leave balance is about to turn into money, and you get to decide what kind. You can sell some of it back for a lump sum, use it as terminal leave and go home early on full pay, or do some of each. That choice, plus withholding and any debt on your account, decides how much lands in your last paychecks.

The timing matters as much as the amount. Your regular active-duty pay stops on your separation date. In the Army, money for leave you sold is deposited after that date, not on the day you clear post, and DoD can use all of it to pay a debt you owe the government.

How much leave you can sell, and what a day is worth

By law, you can be paid for no more than 60 days of leave across your whole career. Days you sold at an earlier reenlistment count against that 60, even in another branch or before a break in service. So if you sold 20 days when you reenlisted years ago, you have 40 left.

A day of leave is worth one-thirtieth of your monthly basic pay. Military pay treats every month as 30 days, and DoD values sold leave using basic pay only, at the rate you're paid on your separation date. That means no BAH, no BAS and no special pay, and a January 1 raise counts if you separate after it.

Sixty days sold equals two months of basic pay before tax. At fictional monthly basic pay of $4,500, each day is $150, and 60 days is $9,000. DoD's pay regulation points to the current basic pay table on DFAS.mil for real rates.

Some leave sits outside the 60-day limit: leave a Guard or Reserve member earns on contingency duty or on a tour of 31 to 365 days, and leave recalled retirees earn on contingency duty.

Enlisted members with Special Leave Accrual have one extra option. If you'd lose leave above 90 days, you can sell up to 30 of those days, once in your career. Those days still count toward the 60, and officers and warrant officers can't use this option. The Army's 2020 leave regulation still says 120 days here, but the law and DoD's pay regulation now say 90.

Some people get nothing for their leave. An other-than-honorable discharge forfeits all of it, no matter how long you served. You also can't be paid for leave when you're discharged to accept a commission or a warrant.

What keeps coming on terminal leave

Terminal leave is ordinary leave from your own balance, used right before you separate or retire. DoD policy says it should be granted if you want it, but you need your orders in hand and all administrative processing finished before you leave on it. It ends on your separation date, the date on your DD-214, and doesn't move that date. Leave taken before discharge counts as active service, so on terminal leave you're still on active duty.

On authorized leave you remain entitled to full pay and allowances, including basic pay, BAH and BAS. Final-pay processing can delay the deposit, so confirm the last paydays with your separating finance office. BAH stops at midnight on your discharge date. If you're leaving barracks or base housing, BAH starts on the date your quarters assignment ends or you move out with approval, and DoD ordinarily bases it on your permanent duty station. Special and incentive pays have their own leave rules, which this guide doesn't cover.

Your other benefits carry on too. You and your family stay on active-duty TRICARE, and TAMP, the 180-day transitional coverage, isn't available until you separate. SGLI premiums still come out of your pay, but nothing is taken for the 120 days of free coverage after you separate. For what happens to your life insurance after that, see What happens to your SGLI when you get out.

You keep earning leave at 2.5 days a month, including on terminal leave, so two months of it earns about 5 more days. The Army lets you count that leave when you plan: your terminal leave can't exceed the balance you'll have on your separation date, including what you earn along the way. Under the Army's table, a separation on the 25th or later earns the full 2.5 days for that month.

Taking more leave than that costs you. Leave beyond your balance is excess leave, which is unpaid, and the debts section below explains how it's collected.

If you're separating under honorable conditions and take a federal civilian job on terminal leave, you can be paid by both for the rest of your leave. (Private-sector jobs aren't covered here.) And VA can't pay disability compensation for any period you get active-duty pay, so it can't start until after your separation date.

Sell, take terminal leave, or both

It isn't either-or. The Army lists three ways to settle your leave: sell up to 60 days and take the rest as terminal leave, sell some and take the rest, or sell none and take it all. DoD's pay rules allow the same mix.

The trade is time against money. Your separation date is the same either way. Terminal leave pays you what you'd earn at work, while you're free to move, look for work or start a federal job. Selling adds cash on top of your regular pay, at basic pay only, but you work those days instead.

Leave you can neither sell nor use isn't paid for. If you've already sold 40 days in your career and have 60 on the books, you can sell 20, and the other 40 count only if you use them as terminal leave. Retirees face one more limit: you can't take leave past your retirement date, and leave you can't use by then can be sold only within the 60-day cap.

How sold leave is taxed

Sold leave is taxable income, like the rest of your basic pay. The IRS treats a lump-sum payment for unused leave as supplemental wages. For 2026, the flat federal income tax withholding rate on supplemental wages is 22%, or 37% on supplemental wages over $1 million in a year.

But 22% isn't the only way. IRS Publication 15, which DoD follows, also lets a payer add the payment to a regular paycheck and withhold on the total as if it were one payment. No DoD source we checked says which method DFAS uses for sold leave, so check your final LES and DFAS for the amount actually withheld.

Either way, it's withholding, not your tax bill: a payment toward your federal income tax that you take credit for on your return, where what you actually owe is settled.

On the example amount above, 60 days sold comes to $9,000. If it's withheld at the flat 22% rate, that's $1,980, leaving $7,020 before state tax or any other deduction.

Combat-zone leave is different. Leave earned in any month you served in a combat zone or qualified hazardous duty area, even for part of the month, is excluded from federal income tax. DoD doesn't withhold federal or state income tax on it. Enlisted members and warrant officers have no cap on this exclusion, while officers have a monthly cap, and anything above it is taxable.

State income tax depends on the state you claim as your legal residence, wherever you're stationed. This guide can't tell you what you'll owe.

When the last paychecks arrive

Military pay is earned monthly and paid twice a month. The end-of-month payment comes on the 1st of the next month, with a mid-month payment as well. When the 1st falls on a weekend or federal holiday, pay moves to the workday before, but never more than 3 days early. Applying the same rule to the 15th, four paydays between now and April 2027 move.

Your entitlement to pay and allowances runs through your separation date. The ordinary end-of-month payday is the 1st of the next month, but a separation audit can delay the deposit. DFAS says most members receive final pay at separation or soon afterward; an account flagged for additional audit can take 120 days or more. Ask your separating finance office when to expect your last regular payment and final settlement.

The final settlement is where your sold leave shows up, with any debt taken out. In the Army, leave settlements are deposited to your bank account after your date of discharge, not on the day you finish out-processing. If your last day of active duty falls on a weekend or holiday, DoD can make the separation payment on the workday before.

Processing varies by service and account. Treat final-pay deposits as uncertain until your finance office confirms them, and plan for a delay even when the ordinary payday is known.

If you're retiring

A regular retirement takes effect on the first day of a month: the first of the month after you meet the service requirements. Your active-duty pay and BAH run through the day before. A disability retirement can take effect on any day of the month.

Retired pay accrues from your retirement date and is paid on the 1st of the following month, a month behind. Retire on December 1, 2026, and the ordinary payday for November active-duty pay is December 1, subject to final-pay processing. Your December retired pay is due January 1, 2027, a holiday, which the rules let DFAS pay on Thursday, December 31, 2026.

That's the earliest it's due, not a promise of when it lands. We couldn't confirm how long DFAS takes to start a new retiree's pay. If your retired pay starts partway through a month, as a disability retirement can, the first month is paid at one-thirtieth of the monthly amount for each day.

Separation pay if you're separated involuntarily

If you're leaving because the service isn't keeping you, you may get separation pay. Regular enlisted members qualify when they're discharged involuntarily or denied reenlistment after at least 6 but fewer than 20 years of active service. Some Regular officers, such as those separated under the promotion and continuation laws, qualify too, as do Reserve members on active duty who are released involuntarily.

Full separation pay needs an honorable characterization and a qualifying reason. Examples include being fully qualified but denied reenlistment or continuation, including under high-year-of-tenure rules, or a reduction in force. Half pay allows a general discharge, for listed reasons such as failing weight control or minimum retention standards, or failing alcohol or drug rehabilitation.

Ordinary involuntary-separation pay excludes voluntary departures, first-enlistment or initial-obligation separations (including denied reenlistment), and retirement-eligible members. You must agree to at least 3 years in the Ready Reserve. Sole-survivorship discharges have separate eligibility and payment rules; ask finance to apply that exception. The calculations below cover ordinary involuntary separation pay.

The formula is 10% of 12 months of basic pay, times your years of active service. Each extra full month counts as a twelfth of a year, and half pay is half. With the same $4,500 example amount and 8 years, full separation pay is 0.10 × 12 × $4,500 × 8 = $43,200, and half is $21,600.

Separation pay is taxable and withheld, even in a combat-zone month. If you later get VA disability compensation, VA withholds it until it has recovered your separation pay, minus the federal income tax withheld from it. At 22% withholding, that's 78% of the gross, or $33,696 on the $43,200 example. There's no recovery for a disability from a later period of service.

If you later earn military retired pay, for example through Reserve service, DFAS recovers the gross amount from it in monthly installments. For disability retirees, DoD's regulation credits what VA already recovered; ask DFAS about your case. See separation pay and VA disability.

Disability severance pay from a medical separation is a different payment. VA offsets it only against compensation for the same disability, and not at all for a disability from a combat zone or combat-related operations if you separated on or after January 28, 2008. It isn't withheld or reported as taxable if the injury is combat-related, or if you're entitled to VA compensation or have a proposed IDES rating at separation.

Voluntary separation pay is a separate program with its own rules. Section 612 of the National Defense Authorization Act for Fiscal Year 2026 extended its authority through December 31, 2030, so it didn't end on December 31, 2025, as DoD's pay regulation says.

Debts that come out of final pay

Ordinary government-debt installments generally preserve one-third of monthly pay, after court-martial forfeitures and other lawful withholding are applied. That isn't a guaranteed take-home minimum. Leave payments at separation have no such debt-collection limit: DoD can apply the whole payment to government debt. Confirm your debt balance before counting sold leave as cash.

One debt you can see coming is a negative leave balance. Excess leave you don't carry into a new enlistment has to be repaid at discharge. Advance leave still owed when you leave active duty becomes excess leave, and it's collected.

If an overpayment wasn't your fault, the law gives you some protection. Monthly collection from your pay is capped at 15% unless you agree to more, and you must get a reasonable chance to ask for a delay. For no-fault debts incurred since the FY2017 defense authorization act, collection has to start within 10 years.

You can also ask for an erroneous payment to be waived. The service secretary can waive claims up to $10,000, and you have to apply within 5 years of the date the overpayment was discovered.

Planning your first 90 days

Separate earned pay from confirmed deposits.

• Earned through separation; deposit timing to confirm: regular pay and allowances. The ordinary 1st-and-15th schedule does not guarantee your final deposit.
• Uncertain timing: the final settlement with any sold leave, minus any debt.
• Uncertain timing: separation pay, if you qualify.
• Uncertain: VA compensation. It's payable from the 1st of the month after it starts, and BDD's goal is a decision within 30 days after separation.
• Uncertain: your first retired pay deposit.
• Uncertain: unemployment compensation for ex-servicemembers (UCX). It requires a release under honorable conditions and, with some exceptions, a completed first term. It's paid in the same amount and on the same terms as your state's unemployment benefits.
• A cost to price: health coverage if you aren't in one of TAMP's groups.

Under the JTR, separating without severance or separation pay generally authorizes household-goods shipping to your home of record or place of entry. Submit a written request to transportation by day 180 after separation; authority otherwise ends on day 181, and storage ends at day 180.

Disability retirement or TDRL qualifies for a home of selection at any service length. Other paid retirements and qualifying separation-pay cases need 8 continuous active-duty years, with no break over 90 days. HOS cases ending active duty on or after June 24, 2022, have 3 years to ship and 1 year of storage. For under-8-years severance or separation pay, confirm travel and storage limits with transportation. Our final-move guide explains the categories and extensions.

The JTR controls despite Military OneSource's older one-year checklist. Moving and storage the government provides for a final move made within the allowed time isn't taxable income. A civilian employer's relocation money is taxable, and a do-it-yourself move incentive is taxed and withheld when it's paid.

One example, start to finish

Example (fictional) Tasha Greene is a 31-year-old Army staff sergeant (E-6) leaving at the end of her enlistment after 10 years. She's leaving voluntarily, so separation pay doesn't apply. Her separation date is Friday, January 29, 2027. She has never sold leave, she filed a VA claim through BDD before separating, and her civilian job starts March 1. Her monthly basic pay on her separation date is $4,500, an example amount, not a pay-table rate.

When she clears post on December 30, 2026, her leave balance, counting what she'll earn through January 29, is 50 days. Separating on the 29th, she earns the full 2.5 days for January. She takes 30 days of terminal leave, December 31 through January 29, and sells the other 20.

Her 20 sold days are worth 20 × $150 = $3,000 before tax. If it's withheld at the flat 22% rate, $660 of federal income tax comes out, leaving $2,340 before state tax or any other deduction. That money comes in her final settlement after January 29, on a day her service sets, subject to debt adjustments. She checks her final LES and DFAS for the amount actually withheld. Had she taken all 50 days as terminal leave instead, it would have started on December 11, on the same full pay, but without the extra $3,000.

Her February plan starts with existing savings. She confirms final-pay timing with finance; a February 1 deposit, VA compensation and civilian pay remain uncertain. She isn't separating involuntarily and doesn't fit TAMP's other groups, so she prices her own health coverage from January 30. Because she's separating, not retiring, her final-move request must be in writing by day 180, July 28. Her leave choice doesn't change her separation date.

This is general information, not tax or financial advice for your situation. For free one-on-one help with your plan, talk to a financial counselor at your installation or call Military OneSource at 800-342-9647. Military OneSource is open to you and your immediate family until 365 days after you retire or are honorably discharged.