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Social Security Taxes on Vacation Payout

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?

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.

About the Author

John Grobe is President of Federal Career Experts, a firm that provides pre-retirement training and seminars to a wide variety of federal agencies. FCE’s instructors are all retired federal retirement specialists who educate class participants on the ins and outs of federal retirement and benefits; there is never an attempt to influence participants to invest a certain way, or to purchase any financial products. John and FCE specialize in retirement for special category employees, such as law enforcement officers.