Q: If I retire near the end of the year, is my vacation payout going to be subject to Social Security tax if I have already reached the upper limit for payments under FERS? And if I retire at the end of November, is the vacation payout going to be taxable in the next year if I receive the payment for the unused leave after January 1?
A: SS tax is only taken out of income up to $117,000 in 2014, so no tax would be taken out of your leave payment if you received it in 2014. Of course, if you received it in 2014, it would be taxable for federal income tax purposes in 2014. If you received it in 2015, it would be taxable for federal income tax purposes in 2015, but would have SS tax taken out.
