Social Security Taxes on Vacation Payout

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By on September 15, 2014 in Q&A with 1 Comment

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.

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at [email protected] to discuss schedules and costs.

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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.