Is Money Received After the New Year Income for 2015 or 2014?

By on January 12, 2015 in Pay & Benefits, Q&A, Retirement with 4 Comments

Q: I have two questions related to the years with the 27th pay day.

  1. Our agency’s first pay day was Friday January 2, 2015, which means that all of the pay for that date was earned in 2014. I believe I am correct is assuming that money is still 2015 income since it is received in 2015. Is that correct?
  2. A more complex question (at least for me) relates to use or lose leave. When I retired from the civil service (I am working in HR for a non-appropriated fund activity) I had intentionally maxed out my annual leave in order to have the largest payout possible. I retired in Dec 2012 and I recall there was some confusion (even within our payroll office) as to when the date for use or lose was. As I remember, the last day of the last pay period in 2012 was something like Jan 10, 2013, which is when I should have retired. But since I could not get a straight answer on when my use or lose expired, I was afraid of taking the chance of losing 200+ hours so I retired on 29 December. I think I missed out on some earnings, but oh well… Can you shed any light on the use or lose issue?

A: For those of us who are “cash-basis” taxpayers (almost all of us), money is taxable to us when it is received. You are correct that the money you receive on January 2, 2015 is taxable in 2015, even though the work that resulted in that pay was performed in 2014.

Going back to your retirement in 2012, the last pay period of the leave year ended on January 12, 2013. Therefore, if you had worked up to that date, you would have gotten an additional pay period’s worth of leave in your lump-sum A/L payment. However, had you worked until that date, you would not have been entitled to a pension for the month of January. By retiring when you did, on December 29, 2012, you did receive a pension for January. Without actually crunching the numbers, I can’t tell if it would have been more advantageous for you to work to the end of the leave year or not. In any event, the monetary difference is not very much.

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© 2016 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.

About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.

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