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Author: jtsheldon Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Accrued vacation payouts taxed at 25%? Date: 4/27/2009 1:43 PM
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Left my previous employer and received my accrued vacation balance I had earned. I almost fell off my chair when I saw the amount of taxes removed from the check.

I spoke with my former employer's payroll coordinator and said the system is setup to tax at 25% and said 'we have to do it that way'

I live and work in Virginia.

I guess my question is this...if I was to go on vacation while still working there for a week. The vacation time would be considered normal pay and not double-taxed.

Why is it double-taxed when I accept the vacation balance?
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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105963 of 121219
Subject: Re: Accrued vacation payouts taxed at 25%? Date: 4/27/2009 2:13 PM
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I spoke with my former employer's payroll coordinator and said the system is setup to tax at 25% and said 'we have to do it that way'

I guess my question is this...if I was to go on vacation while still working there for a week. The vacation time would be considered normal pay and not double-taxed.

Why is it double-taxed when I accept the vacation balance?

_____________________________________________
Why do you think it's double-taxed?
When you go on vacation you get your normal salary but don't work.

When you leave and have unused vacation, they pay you EXTRA MONEY on top of what you earned. That's not double-taxed.

As far as the 25% rate, that's one option they have for lump-sum payments, which a lot of companies use for things like bonuses, stock option deals, etc. (i.e. payments that don't relate to a specific time period.)

Some companies will use a little more common sense on things like vacation pay. For example, if you have a month's vacation pay coming, they'll use the monthly chart to determine the withholding amount. That takes discretion, and some companies don't allow it.

And if the amount withheld truly is excessive, you should have a refund when you file your return.

Bill

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Author: SRenaeP Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105964 of 121219
Subject: Re: Accrued vacation payouts taxed at 25%? Date: 4/27/2009 2:13 PM
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Left my previous employer and received my accrued vacation balance I had earned. I almost fell off my chair when I saw the amount of taxes removed from the check.

I spoke with my former employer's payroll coordinator and said the system is setup to tax at 25% and said 'we have to do it that way'

I live and work in Virginia.

I guess my question is this...if I was to go on vacation while still working there for a week. The vacation time would be considered normal pay and not double-taxed.

Why is it double-taxed when I accept the vacation balance?


You're not being double taxed. The payout had 25% WITHHELD, not necessarily taxed. Your tax liability will be whatever it will be regardless of how much was withheld.

Bonuses, vacation payout, etc. are often withheld at a higher rate because the payroll calculations assume that is what you are always paid vs treating it as a one time anomaly.

-Steph

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105966 of 121219
Subject: Re: Accrued vacation payouts taxed at 25%? Date: 4/27/2009 2:30 PM
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I spoke with my former employer's payroll coordinator and said the system is setup to tax at 25%

Think Goldilocks. What was withheld may be too much, too little, or just right. It will depend on your total income for the year.

Sit down with your YTD numbers from the old job and project through the end of the year. Then figure what your total tax and total withholding will be using the worksheet for Form 1040-ES. That will give you an idea of whether you need to adjust your withholding at your current job.

Phil

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105972 of 121219
Subject: Re: Accrued vacation payouts taxed at 25%? Date: 4/28/2009 5:59 AM
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Why is it double-taxed when I accept the vacation balance?

You're not being double taxed. The payout had 25% WITHHELD, not necessarily taxed. Your tax liability will be whatever it will be regardless of how much was withheld.

Bonuses, vacation payout, etc. are often withheld at a higher rate because the payroll calculations assume that is what you are always paid vs treating it as a one time anomaly.


The lump-sum withholding is just as often much less than the appropriate amount for high income taxpayers. If your marginal tax rate is greater than 25%, the 25% fixed withholding can leave you owing not only additional taxes, but penalties for underpayment of estimated taxes.

Ira

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