Leave Planner

Active-duty members accrue leave at 2.5 days per month of service under 10 U.S.C. § 701, or 30 days per year. At separation or retirement, the accrued balance can be taken as terminal leave, sold back as a lump-sum payment under 37 U.S.C. § 501, or split between the two. Each path produces a different number on the final paycheck and a different tax outcome. The decision is rarely about "which is more money" — both produce the same gross amount per day of leave. It is about timing, BAH, BAS, TRICARE coverage, and what the member needs the time for.

Terminal leave: the everything-still-on path. Terminal leave is ordinary chargeable leave taken immediately before the official Date of Separation (DOS). The member remains in an active-duty pay status through the leave period — basic pay continues at full monthly rate, BAH continues at the duty-station rate, BAS continues at the current monthly rate, TRICARE coverage continues for the member and dependents, and the member can still use the commissary, exchange, and base services. The trade-off is that terminal leave burns accrued leave days at one-day-per-calendar-day. A member with 45 days of accrued leave who takes 45 days of terminal leave ends with a zero balance and zero sell-back payment.

Sell-back: the lump-sum path. Selling back leave converts accrued leave days into a one-time payment at the member's current basic-pay daily rate (monthly basic pay ÷ 30). The career-lifetime cap is 60 days under 37 U.S.C. § 501(b)(1); days sold back in earlier separations count against the 60. Sold-back days do not carry BAH or BAS — only basic pay. That single rule is the most common surprise on the final LES. An E-6 over 14 with 45 days of leave who sells back the full balance receives roughly 45 × (monthly basic pay ÷ 30) — and zero BAH or BAS on those days, even though terminal leave would have paid all three.

The mid-month separation problem. Because the DoD pay system prorates BAH and BAS over a 30-day month, separating mid-month — say, on the 15th — produces only 15 days of BAH and BAS in the final month no matter how many calendar days had passed. A member who sells back leave instead of taking terminal leave through the end of the month loses the second-half BAH and BAS entirely. For high-BAH duty stations (most metro areas with E-6 with-dependents BAH of $2,400-$3,500 per month) the lost half-month is $1,200-$1,750 in BAH plus $238 in BAS — a meaningful amount that does not appear on the terminal-leave-versus-sell-back math unless the comparison runs the calendar carefully.

Tax treatment differences. Both terminal leave and sold-back leave are taxable as ordinary income on the year-of-payment W-2 (DoD FMR Vol 7A Ch 35 § 350602). Two practical differences shift the after-tax math. First, sold-back leave is typically issued as a single lump-sum payment that DFAS withholds federal income tax on at a flat 22% supplemental wage rate under IRS regulations, which is often higher than the member's actual marginal rate — the difference comes back as a refund the following April but is unavailable in the months between separation and refund. Terminal leave is withheld at the regular wage rate using the W-4 the member has on file. Second, terminal leave is generally still subject to FICA (Social Security and Medicare); sold-back leave is also subject to FICA per the DoD interpretation.

SkillBridge and Permissive TDY (PTDY) reduce the trade-off. SkillBridge is non-chargeable — the member is in industry training but still on active duty, BAH and BAS continue, no leave days burn. Permissive TDY for house-hunting before a PCS is similarly non-chargeable for up to 10 days (CONUS) or 20 days (OCONUS) under service-specific authorizations (DAFI 36-3003, Table 4.5, for the Air and Space Force). Combining SkillBridge and terminal leave has become the standard transition sequence for members with 180 days of separation runway because it preserves both the BAH continuity AND the accrued leave balance for sell-back, capturing the full value of both paths.

Terminal leave runs right up to your separation date. Accrued leave taken at the end of service (terminal leave) may be scheduled up to — but not past — the Date of Separation; there is no minimum on-duty period required in the days before DOS. Any balance not used by the separation date is either sold back (up to the 60-day career cap) or forfeited. SkillBridge and PTDY are non-chargeable alternatives that preserve both BAH continuity and the accrued-leave balance for sell-back.

Use-or-lose at fiscal year-end. Leave balances above 60 days on 30 September (or above individual-service variant caps for combat-zone leave) are forfeited under DoD FMR Vol 7A Ch 35 § 350202. The fiscal-year-end forfeiture is a meaningful planning factor for members not yet at separation: a balance over 60 days entering July or August signals that scheduled leave or sell-back planning needs attention before September 30. Combat Zone Tax Exclusion (CZTE) deployments allow special leave accrual (SLA) up to 120 days under 10 U.S.C. § 701(f), which has its own use-by deadlines that do not snap on the fiscal calendar.

Authorities: 10 U.S.C. § 701 (Entitlement and accumulation of leave); 37 U.S.C. § 501 (Payment for unused leave); 10 U.S.C. § 1143(e) (SkillBridge); DoD Financial Management Regulation Volume 7A, Chapter 35; AFI 36-2671 (Air Force SkillBridge Program); DAFI 36-3003 (Military Leave Program — PTDY/terminal leave); IRS Publication 15 (Employer Tax Guide — supplemental wage withholding rules). For binding answers on your individual separation timing, contact your installation finance office before submitting the DD Form 31 leave request.