my daughter quit her job and was paid a final check with the unused accrued vacation time added in. but the employer deducted far more taxes from the final check than for prior checks that were for more money. the employer said that the IRS withholding taxes are higher for paid unused vacation time. does anyone know if this is right??
2007-10-31 11:28:49 · 9 answers · asked by Robo_bob 1 in Business & Finance ➔ Taxes ➔ United States
There are a two main reasons that this happened. First, the vacation pay could have been taxed as supplemental income which is usually taxed at 25%. Second, she may have more vacation time accrued than would be in a normal paycheck. The tax withholding tables do not take into account if any check is your last paycheck or not. If the check for the vacation pay was 3 times what it would normally have been then, you should expect to have more taxes taken out.
For example, if your daughter claim Single with one exemption on her W-4, and if her normal paycheck was $1000 every 2 weeks, then she would have about $138 withheld for federal tax. If she received $3000 in vacation pay for her last check, she would have had about $680 withheld from her paycheck for federal tax.
2007-10-31 11:51:53 · answer #1 · answered by Steve 6 · 3⤊ 0⤋
I concur with the first poster. Vacation pay, Christmas bonuses, and other pay piled on at once causes you to pay taxes at a higher rate than the rest of the year.
As an example, let's say you earn $60K a year, $5K a month, and they usually take out 10%, which is $500. At the end of the year, you have 30 days unused vacation pay so you get paid $5K regular, plus $5K vacation pay, for a total of $10K, but they take out 25% which is $2500. When you file your taxes, you show $65K gross annual pay (60+5 for vacation pay), and they took out $8000 (500*11 months + 2500 the last month). The total after exemptions and deductions is 10% of your gross pay, which is $6500. You would get back $1500 (8000-6500) which, in this case is exactly how much they overwithheld when they paid you vacation pay (15% too much times $10K final check).
The bottom line is you have a little less cash left at the time of the vacation pay, but your tax return is higher or your tax owed is less.
2007-10-31 11:50:44 · answer #2 · answered by Frank 5 · 2⤊ 0⤋
Yes and no. Withholding tax is higher in most cases if they use a supplemental pay tax rate, in which case it is 28% federal, plus state tax. It doesn't matter if the supplemental pay is unused vacation, bonus, or something else.
Unlike a bonus, unused vacation pay is not required to be taxed at supplemental rates. It is possible that they could have taxed it at regular rates, but their payroll system may not be set up to calculate tax on anything but their regular pay period. If the unused vacation didn't match that, the taxes would have been over- or underwithheld.
2007-10-31 11:37:50 · answer #3 · answered by Brian G 6 · 2⤊ 0⤋
Yes it is right. The IRS insists that certain types of payments be taxed at a standardized rate. Vacation payoff is one type of payment that is taxed that way. However, keep in mind that when a tax return is filed next spring, if any of those taxes were excessive, she will be getting a refund. So you don't really lose the money, it just gets delayed.
2007-10-31 11:36:02 · answer #4 · answered by Angie 6 · 3⤊ 0⤋
I had scheduled my vacations over a month as I traveled out of the country . They did not pay it to me. As I came back and resigned , they did the pay out with a ridiculous tax amount taken out. Should I argue that ?? Had they paid my vac as I scheduled them , that much would not have been taken out right ? or do I get something back during tax return ?
2016-01-31 00:27:15 · answer #5 · answered by Justagirl 2 · 1⤊ 0⤋
Upon termination from my employment, I was compensated for 27 comp. days and 7 vacation days. They did not run this through payroll, instead writing a check for the full amount and sending me a 1099 misc. form as a nonemployee compensation. Is this the correct way to handle this payment? Am I responsible for 15.3% taxes?
2016-02-10 03:08:50 · answer #6 · answered by Cynthia Hoffpauir 1 · 0⤊ 0⤋
The withholding might be higher, but when she actually files her tax return, it'll be taxed the same as any other pay. If too much was deducted overall, the extra will be refunded to her.
2007-10-31 12:54:28 · answer #7 · answered by Judy 7 · 1⤊ 0⤋
It is not taxed at a higher rate but taxes may be withheld at a higher rate.
2007-10-31 12:35:52 · answer #8 · answered by Anonymous · 4⤊ 0⤋
BUT DO YOU HAVE TO PAY THAT TAX OR CAN YOU CHOSE TO PAY THE TAXES AT THE TIME OF TAX FILING
2016-01-20 06:29:25 · answer #9 · answered by Tina 1 · 0⤊ 0⤋