Back pay and tax
what police actually keep

Police pay deals are often agreed months after the date the increase starts. NSW members voted on their 2024 award in November 2024 with back pay to 1 July 2024. WA's 2024 Agreement was registered on 13 May 2025 with increases payable from 1 July 2024. When the agreement is approved, payroll pays the difference for the earlier pay periods as a lump.

That back pay is salary and wages. It's taxable at your normal rates in the income year you receive it, not the year the work was done, and the ATO says not to amend earlier returns. Two things are different about it: how payroll withholds tax from it, and how it's reported if part of it is more than 12 months old.

1. 1

   Payroll calculates the arrears

   Pay office

   The new rate minus the old rate, for every pay period since the effective date, including penalties and allowances that moved with salary.

2. 2

   Tax is withheld using Schedule 5

   Pay day

   The ATO's tax table for back payments, commissions and bonuses sets how much to withhold. It usually lands near your marginal rate.

3. 3

   It's reported on your income statement

   Single Touch Payroll

   Arrears accrued in the last 12 months go in with salary and wages. Older arrears go to Lump sum E, split by financial year.

4. 4

   The ATO assesses it in your return

   Tax time

   Your actual tax is worked out on your total income for the year. Over-withholding comes back; Lump sum E is tested for the offset.

Under the ATO's Schedule 5, payroll can use Method A for any back payment. It divides the extra amount by the number of pay periods in the year (26 for fortnightly pay), adds that to your normal fortnight, finds the extra withholding from the tax table, and multiplies back up. The effect is to tax the lump as if it were spread over a whole year, which is roughly your marginal rate.

Here's an illustration at 2026-27 rates. A WA Constable on the current 5th-year salary of $102,263 receives $3,761 of back pay in one fortnight. Spread across the year, that extra income is taxed at their marginal rate, so the withholding on it is about $1,204, or 32%. Their normal fortnightly gross is $3,933, so that one payslip shows far more tax than usual.

These figures are our estimate using annualised 2026-27 rates, not the ATO's exact tax tables, so your payslip may differ by a few dollars. If withholding on back pay is far above your marginal rate, ask payroll which method they used.

Lump sum E is back pay of salary or wages that accrued, or was payable, more than 12 months before the date it was paid. It's the reason the gap between a deal's start date and its approval matters for tax reporting.

Your income statement in myGov now shows the Lump sum E amount and the financial year each part relates to, so you no longer get a separate letter from payroll. In myTax you enter the breakdown for up to the five most recent years. If the breakdown is missing or looks wrong, ask your payroll area to correct it before you lodge.

Because Lump sum E is taxed in the year you receive it, you could pay more than if it had been paid on time, for example if it pushes you into a higher bracket. The lump sum payment in arrears (LSPIA) tax offset is there to fix that. The ATO works it out automatically from your return, but you have to pass a threshold test first.

1. 1

   It must be eligible arrears

   Test 1

   Salary or wages accrued more than 12 months before payment qualify, among other payment types.

2. 2

   It must be at least 10% of your other income

   Test 2

   Your taxable income for the year, minus the arrears and some other items, is your threshold test income. The arrears must be 10% or more of it.

3. 3

   The ATO compares tax rates

   Calculation

   It compares the tax on the arrears this year with the tax that would have applied in the years they relate to. The offset is the difference.

For most police back pay, the offset will be small or nil. Pay-deal arrears are usually a few thousand dollars against a salary of $80,000 to $140,000, so they often fail the 10% test. When they pass, the arrears are usually taxed in the same 30% bracket now as they would have been earlier, and the ATO notes the offset is commonly $0 for that reason.

There's also a Medicare levy exemption on qualifying arrears from 1 July 2024, but it only helps people who wouldn't have paid the full levy in the earlier years. That rarely applies to a full-time officer. A Medicare levy surcharge offset can also apply if the arrears push you over an MLS threshold.

WA's 2024 Agreement was registered on 13 May 2025, and increased salaries are payable from 1 July 2024. That's roughly ten and a half months between the effective date and registration, before payroll could start paying the new rate and work out arrears. The table shows the annual increase at three ranks and, for illustration, ten months of it.

Whether any of that was Lump sum E depended on when it was paid. If arrears were paid by about the end of June 2025, every period was within 12 months, so it was all ordinary salary in the 2024-25 year. Arrears paid after 1 July 2025 for periods more than 12 months earlier, such as July 2024, would be Lump sum E. Your 2024-25 or 2025-26 income statement shows which applied to you.

On $90,263, ten months of arrears of about $3,761 is well under 10% of income, so a WA constable wouldn't meet the LSPIA threshold test in either case. The back pay was taxed at their ordinary marginal rate. See the WA pay deal for the rest of the agreement.

Queensland's 2025 agreement includes a CPI Uplift Adjustment. Because March 2026 Brisbane CPI was above 3%, the 1 July 2025 increase rose from 3% to 3.5%, and the difference was back-paid. According to QPS's CPI Uplift Adjustment page, the back pay ran from the pay fortnight of 24 June 2026 to about 5 August 2026.

This back pay is small: about $509 for a year at Senior Constable 2.6, before penalties. Because the 21% Operational Shift Allowance is a percentage of salary, officers on OSA rosters receive more. Payments made in July or August 2026 for July or August 2025 could technically fall more than 12 months back, and so be reported as Lump sum E even though the amounts are small, now that the $1,200 threshold is gone. Payments for later periods would be ordinary salary.

Back pay is taxed in the year it's paid, so a payment just before or after 30 June changes which return it's in and which year's rates apply. It can also change the year's income for income-tested items.

Where income-tested thresholds are close, back pay can tip you over. The Medicare levy surcharge thresholds for 2026-27 start at $105,000 for singles without private hospital cover, and HELP repayments rise with income. If you're near a threshold, the timing of a large back payment is worth knowing about in advance.

Not every lump in a pay deal is back pay. Some deals include one-off payments that aren't tied to specific past pay periods. South Australia's December 2024 deal is an example: 4% from Jan 2025 plus a $2,500 retention salary increase; 4% or the national midpoint from Jan 2026 plus a $3,500 one-off payment. Victoria's 2025 agreement included a "Patience in Bargaining" lump sum covering 1 June 2024 to 23 January 2025.

A one-off payment that isn't arrears for an earlier period isn't Lump sum E, so the LSPIA offset doesn't apply to it. It's simply income in the year you receive it. If a one-off payment lands in a year when you're already close to a higher tax bracket or a Medicare levy surcharge threshold, that's worth knowing before it arrives. Check the treatment of your own deal with your association or payroll.

1. 1

   Check the payslip line by line

   Pay day

   Look for the periods covered, the old and new rates, and whether penalties, allowances and overtime were recalculated. Back-paid overtime should use the new hourly rate.

2. 2

   Check the withholding

   Pay day

   Tax on the back pay line should be close to your marginal rate, usually 32% for most officers, plus HELP if you've declared a debt. It can't exceed 47% under Methods A and B(ii).

3. 3

   Find Lump sum E in ATO online

   After 30 June

   In myGov, go to the ATO's Employment section, then Income statements. Under 'Lump sum amounts', look for 'Lump sum payment E' and 'Lump sum E financial year'.

4. 4

   Enter the breakdown in myTax

   Lodging

   For each income year the arrears relate to, select the year and enter the amount, most recent first, up to five years. A tax agent does this for you.

5. 5

   Ask payroll to fix gaps

   If needed

   If the breakdown is missing or wrong, ask the payer to correct it before you lodge. Arrears more than 10 years old need a paper return.

The ATO says the myTax estimate doesn't include the LSPIA offset or the Medicare levy exemption, so your notice of assessment may be slightly better than the estimate if you qualify. If you're due a refund from over-withholding on back pay, it arrives when your return is processed.

In the WA illustration above, if the constable had a HELP debt, the $3,761 of back pay would add about $564 to their compulsory HELP repayment at 2026-27 rates. Check that employer super was calculated on the back-paid salary as well; if you're unsure, ask payroll or check your super fund's contributions.

Whether you get back pay at all depends on the agreement and on government wages policy. WA's new Public Sector Wages Policy Statement 2026 applies to the next WA Police agreement, which is due after the current one expires on 30 June 2027. Under it, new agreements apply from registration, and retrospective pay to the previous expiry is discretionary: the government "may consider" it.

The longer a deal takes to approve, the more of your pay rise arrives as one taxed lump instead of in each fortnight.

The pay deal tracker follows every force's negotiations, offers and votes, with back-pay dates as they're confirmed. Your association negotiates the deal: see police associations and unions.

Back pay is a one-off lump of after-tax cash, usually a few hundred to a few thousand dollars. Because it's already been taxed, it's a good moment to deal with something that otherwise sits on the back burner.

Our budgeting on shift work guide shows how to treat back pay, overtime and penalties as irregular income. For your new fortnightly figure once the rise is in, use the calculator.