Terminal Leave: Sell or Use At Separation

Should service members go on terminal leave before retiring or separating from the military? Or should they choose to sell back that leave instead? What is the best use of your accrued leave on your way out the door from your military duty and into your new life as a civilian?

In spite of our mentions of federal taxation below, what follows is not tax advice and should not be taken as such. If you have tax questions, it’s best to ask a tax professional. Tax rules change frequently, and what was allowed last year is not necessarily allowed next year.

Ask before you choose. Also, this article does not pretend to address each and every scenario where it may be wise or unwise to sell back leave. When in doubt, consult your command support staff, first individual, command sergeant major, or detailer for advice.

What Is Terminal Leave?

Before dispensing any advice about terminal leave, let’s define our terms. Technically, Terminal Leave is not a special type of leave you accrue during a military career that is separate from ordinary leave. Nobody has a Leave and Earnings Statement that has a separate block for accrued ordinary leave and a block for accrued Terminal Leave.

So what exactly is Terminal Leave? It’s more about the status of the service member while on leave.

Troops do not, for example, accrue Emergency Leave but rather use ordinary time off, which is given the status of emergency leave when it is taken.

Terminal Leave is also a type of leave status and not a special kind of military leave. You earn your ordinary leave and use it as Terminal Leave when the time is right.

How Leave Is Accrued

Each service member accrues two and a half days per month of active-duty service. This leave is earned on active duty and Guard/Reserve members who serve on active status also accrue this leave. Twelve months of active duty service equals 30 days of leave, which may be used as ordinary leave, emergency leave, or Terminal Leave.

When on leave status of any kind, service members continue to be paid their full military salary, benefits, special pay, etc. They also continue to accrue leave. That means that if you take a full year’s worth at once the way some troops do, you earn back two-and-a-half days for the month you were off duty.

Military leave can accrue, but not indefinitely. You can save up to 60 days of leave before entering use-or-lose status. Any days accrued beyond 60 days must be used before the end of the year it was accrued, and you cannot sell back use-or-lose leave. You can sell back a maximum of 60 leave days for your entire career, so it pays to consider your options wisely.

Selling Back Terminal Leave At Retirement or Separation

Issues to remember about selling terminal leave at retirement or separation include taxation. You will be taxed for the leave you sell back, as it is essentially basic pay which is always subject to federal and state taxation unless certain requirements are met such as being in a hostile fire zone, receiving imminent danger pay, serving in a war zone, etc.

There may, depending on the year, current military policies, federal law, and other variables be specific requirements on accrued leave to exempt it from taxation when you sell it back. For example, you may, depending on current policies, be required to have earned the leave you sell back in the combat zone, etc. in order to be exempt from taxation.

Tax laws change from year to year and military guidance on leave policies are also subject to change, so you will need to consult a tax professional to learn what the current year’s requirements are.

How Much You Get When You Sell Back Leave

You will sell back x number of days up to your career-maximum cap of 60 days. You are paid 1/30th of your monthly basic pay for each day sold back.

If you divide your monthly basic pay by 30 (the number of days averaged per month) you will get the number you should expect to be paid (pre-tax). Do not divide your entire paycheck for the month–you will get the wrong amount. Use ONLY your basic pay for this calculation.

The Pros and Cons of Selling Terminal Leave

Pro: You can get your basic pay for the entire number of leave days you sell back to the government. You can leave the military for good without still being on the books for the duration of your leave.

This may be helpful for those who are trying to transition to certain types of jobs that may require your immediate availability upon retirement or separation without being subject to recall. And while that is a concern that may affect only a small number of people relatively speaking, it’s an important option for those who need it.

Pro: Selling terminal leave may provide some much needed cash for transition issues, especially if you must relocate from an overseas location or from a duty station that is far away from where you plan to settle once you have separated.

Con: You are taxed on selling back leave, which is normal. You would be taxed on this pay no matter how you get it, and there’s no getting around it, unless you have certain exceptions applicable for serving in a combat zone, etc. Furthermore, you are not paid allowances or other non-basic pay funds when you sell back leave.

You are only paid your basic pay. Those who use their leave get paid the housing allowance, BAS, and other money they earn in the month when leave is taken. You read that correctly, if you use your leave, you get your housing allowance. If you sell your leave, you do not get BAH, BAS, etc.

Using Terminal Leave At Retirement or Separation

Based on what we have already mentioned above, it seems obvious that using terminal leave can make more financial sense than selling leave back. Terminal leave still gets you your housing allowance, subsistence allowance, and any other pay you were earning prior to going on Terminal Leave.

Some troops may be forced to sell leave back depending on circumstances but if you can avoid doing so in order to collect the allowances you were earning for your last days in service, it may be the better financial option.

Don’t forget that you can also take Permissive TDY to go house hunting in addition to taking terminal leave. Don’t use up your terminal leave house hunting unless you absolutely have to. Not all commands can afford to lose their troops for extended house-hunting time and you may find that mission requirements dictate the availability of permissive TDY.

That’s one reason saving up terminal leave can be very helpful. In the absence of terminal leave, you can still get your search for a new home started.