How Parental Leave Pay Affects Your Family Tax Benefit at Balancing
Many families are surprised to receive an adjustment or debt to their Family Tax Benefit (FTB) after tax time in the year they have a baby.
One common reason is Parental Leave Pay (PPL).
Parental Leave Pay is taxable income. When Services Australia balances your Family Tax Benefit after the financial year ends, that income can change your final entitlement — sometimes significantly.
Understanding how this works before it happens can save you a stressful Centrelink letter.
How FTB balancing works
Family Tax Benefit is paid fortnightly during the year, based on an estimate of your family's adjusted taxable income (ATI).
Because your final income is not known during the year, Services Australia uses the estimate you provide. After the financial year ends and tax returns are lodged, Services Australia performs FTB balancing — comparing:
- the income estimate you used during the year, and
- your actual adjusted taxable income reported to the ATO
Your final FTB entitlement is then recalculated using the actual figure. Balancing can result in an FTB top-up payment, no change, or an FTB debt.
For a broader look at how income errors create simultaneous CCS and FTB debts, see The FTB-CCS Debt Trap.
Why Parental Leave Pay changes your FTB
Parental Leave Pay is treated as taxable income. It appears on your ATO income statement and is included in the adjusted taxable income (ATI) used to calculate Family Tax Benefit.
This means PPL increases your family income for the year.
If PPL was not included in your income estimate — which is common, since many families don't think of it as "income" — your actual ATI at balancing will be higher than expected. The result is a reduction in your final FTB entitlement.
This is not a penalty or error. It is simply the rules working as designed.
Which PPL sources count?
All of the following are counted as taxable income for FTB:
- Government Parental Leave Pay paid by Services Australia
- Employer-funded parental leave paid through your employer on the government's behalf
- Dad and Partner Pay (where applicable)
It does not matter whether the payment came via your employer or directly from Services Australia — if it is government Parental Leave Pay, it counts.
The most common impact: FTB Part B
Parental Leave Pay most often affects FTB Part B.
FTB Part B is designed for families with one main income earner. For partnered families, it is tested against the secondary earner's income — the partner who earns less. In 2025-26:
- the secondary earner can earn up to $6,935 before Part B starts reducing
- payments reduce at 20 cents per dollar above this amount
- Part B cuts out entirely once the secondary earner's income exceeds around $34,438 (if the youngest child is under 5)
For 2025-26, the full government PPL entitlement is 24 weeks for the primary carer, paid at approximately $189.62 per day (National Minimum Wage rate). That is roughly $22,740 gross over 24 weeks — more than three times the FTB Part B secondary earner free area.
Even if you take fewer than 24 weeks, the PPL amount will usually push the secondary earner's income well above the level where Part B reduces or stops.
What this means in practice: many families who receive FTB Part B throughout the year may find at balancing that they were overpaid, because the PPL income was never included in their estimate.
How FTB withholding affects balancing
During the year, Services Australia automatically withholds part of your Family Tax Benefit to reduce the risk of debts at balancing.
For FTB Part A, around 20% is withheld. This withheld amount is usually returned as a top-up payment at balancing if your income estimates were accurate — but it also absorbs some of the shortfall if estimates were off.
FTB Part B does not have the same withholding mechanism. This is why balancing adjustments related to Part B are more likely to result in a debt rather than an offset.
A concrete example
A couple estimates their family income at $120,000 after one parent stops work to care for their newborn. They receive FTB Part A and Part B during the year.
The parent at home receives 20 weeks of Parental Leave Pay (government PPL). At 2025-26 rates, that is approximately $18,960 gross (20 weeks × 5 days × $189.62/day).
Their actual income for the year becomes $138,960.
When balancing occurs:
- the higher income reduces their FTB Part A entitlement
- the secondary earner's PPL income ($18,960) far exceeds the $6,935 free area for FTB Part B
- Services Australia recalculates the year and finds the family received more Part B than they were entitled to
- a Part B debt is raised for the overpaid amount
FTB Part A may also be affected depending on where the combined income falls relative to the income test thresholds.
To see how this plays out for your specific income and family situation, the FTB calculator lets you model annual and fortnightly estimates across different income levels.
How to reduce the risk of an FTB debt
If you expect to receive Parental Leave Pay, you can take steps to reduce the risk of a balancing adjustment.
1. Update your income estimate
Include the expected Parental Leave Pay amount in your income estimate with Services Australia. Calculate the gross amount (before tax) — for government PPL, this is the number of weeks multiplied by the weekly rate.
Adding PPL to your estimate will reduce your ongoing FTB payments to a level that better reflects your final entitlement, leaving less to adjust at balancing.
2. Reduce your fortnightly FTB payments
You can request a lower fortnightly payment amount. This reduces the risk of being overpaid during the year. The amount you did not receive will be paid as a top-up at balancing if you are entitled to it.
3. Receive FTB as a lump sum
You can choose to receive Family Tax Benefit after the end of the financial year rather than fortnightly. This entirely avoids the mid-year estimation problem, because your payment is only calculated once your actual income is known. The trade-off is that you do not have the cash flow benefit during the year.
To switch to lump sum, contact Services Australia or update through myGov.
FTB Part A: lower risk, but still affected
FTB Part A is also tested against income, but the taper structure is different — a 20 cents per dollar reduction above $66,722 (2025-26) moving to a base rate, then a second taper above $118,771.
PPL income can push a family's combined ATI higher, which may:
- move them from maximum rate to a reduced rate
- move them from base rate toward the phase-out zone
The Part A withholding (approximately 20%) absorbs some of this at balancing, so a debt is less likely than with Part B — but it is still possible if the PPL income was not estimated.
Key takeaways
- Parental Leave Pay does not directly reduce Family Tax Benefit.
- It increases your adjusted taxable income for the year, which reduces your FTB entitlement at balancing.
- The most common impact is on FTB Part B, because even a modest PPL amount exceeds the secondary earner income test.
- In 2025-26, the full 24-week primary carer PPL payment is approximately $22,740 gross — well above the Part B free area of $6,935.
- The most effective mitigation is to update your income estimate to include PPL as soon as you know you will receive it.
Estimate your FTB before balancing
If you are taking or planning parental leave, use the FTB calculator to model how different income combinations affect your Part A and Part B entitlements across the year.
The PPL Planner also shows how your household income changes month by month during leave, including the return-to-work transition.
Frequently asked questions
Does employer-paid parental leave count differently for FTB?
No. Whether government PPL is paid directly by Services Australia or channelled through your employer, it is still government Parental Leave Pay and is treated as taxable income for FTB. Purely employer-funded top-up schemes (where the employer pays extra above the government rate from their own funds) are treated differently — but the government component always counts.
If I update my income estimate mid-year to include PPL, will I still get a debt?
Updating your estimate reduces the ongoing overpayment, but it does not reverse payments already made. If you received too much Part B in earlier fortnights, those amounts may still be recovered at balancing. Updating early in the year minimises the total amount at risk.
I am a single parent — does this still affect me?
FTB Part B for single parents is tested against the primary earner's income (the single parent's own income), with a different cutoff (around $120,007 in 2025-26). PPL will increase your income for the year but is less likely to push a single parent above the Part B cutoff — unless your regular income plus PPL exceeds that threshold.
This guide provides general information only. Your final FTB entitlement is determined by Services Australia based on your actual income and circumstances. For personalised advice, contact Services Australia at 136 150 or visit servicesaustralia.gov.au.