The union's executive is due to finalise a severance package next week.
Mr O'Neill damaged his shoulder last year and needs extensive hospital treatment. He represents the union's 4,000 members across Scotland and is no longer able to drive.
The union's membership has grown from 1,500 in 1981 when Mr O'Neill took over the Glasgow office and he was instrumental in arranging for the NAS's national conference to be held in Scotland this Easter for the first time in 30 years.
A former secondary teacher in Glasgow, Mr O'Neill has been an outspoken critic of the dominance of the Educational Institute of Scotland in teacher politics.
He will stay in post until a successor is appointed during the summer and hopes to devote his time to council affairs in East Ayrshire where he is a member of the Labour majority group.