Annual Leave, Taxes and Death

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ProduceMan
Posts: 545
Joined: Thu Jan 18, 2018 12:01 pm

Re: Annual Leave, Taxes and Death

Post by ProduceMan »

I know that 240 is the max annual leave allowed to be carried over (state side employees). I believe Fish8me is aware of this rule. I am not trying to confuse people.
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fish8me
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Joined: Thu Jan 07, 2016 10:36 am

Re: Annual Leave, Taxes and Death

Post by fish8me »

I guess I shouldn't have added "excess of 448"... I'm selling over 550 hours... (Some hours from the 2019 furlough included) but that's not my problem. I'm trying to see/learn if anyone has found a way to levy the heavy taxes that are added on those hours since they are added to the income of the year I retire (2020). Even though, I will receive payment for those A/L hours in 2021.

I'm pretty sure the answer is "no,,," taxes are a given just like death, but its all part of this great retirement strategy that we are all playing as in trying to beat the TSP market...

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mhende2
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Re: Annual Leave, Taxes and Death

Post by mhende2 »

Fish8me, I'm looking at it like this. If I pay the taxes in 2020 I'm better off since I have had excess tax withholding this year anticipating the added income, so I'm already covered and will still receive a tax rebate in spring. in 2021 I'll be strictly living on SS, military retirement, and my Fers annuity. My taxes will be much lower in 21 since the income from leave sale will have been taxed in 2020. Good thing is the leave sale income will be based at higher wage rate provided we get a raise beginning of January, and we only have Fed and state income taxes withheld.
In investing, what is comfortable is rarely profitable.
-Robert Arnott

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bop
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Joined: Sun Jun 03, 2018 10:41 pm

Re: Annual Leave, Taxes and Death

Post by bop »

Fish-- It may come as a small consolation, but if the lump sum payment you receive for unused Annual Leave is paid to you in 2021, it will not be counted toward your 2020 earnings. It will be reported as income on your 2021 W2.

You can verify this in IRS Publication 721, page 11, which states:

A payment for accrued annual leave received on retirement is a salary payment. It is taxable as wages in the tax year you receive it.
The lyf so short, the craft so long to lerne. - Geoffrey Chaucer

fish8me
Posts: 14
Joined: Thu Jan 07, 2016 10:36 am

Re: Annual Leave, Taxes and Death

Post by fish8me »

bop, I believe your correct as I've read this from Jamison and Barfield newsletters...But they take out the taxes at 22% (my bracket), 6.2 SS tax, called the OASDI and 1.45 medi-care tax...
So, over a quarter of my 550 hours payment is taken...(but I should not be in the 22% bracket in 2021.) That's what I'm trying to alleviate...

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bop
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Re: Annual Leave, Taxes and Death

Post by bop »

Like you, I'm planning to retire at the end of the year and will also be receiving a lump sum for unused annual leave.

The amount of withholding you mentioned agrees with what my recently retired friends told me they saw on their lump sum check... 25% to 30%.

Planning for that first tax return in retirement can be tricky, but I think my approach will be to set a slightly lower withholding level on my pension and social security checks to offset the excess withholding on this lump sum payment.

On the other hand, a more casual approach might be to just let it ride and look forward to a bigger tax refund.
The lyf so short, the craft so long to lerne. - Geoffrey Chaucer

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mjedlin66
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Re: Annual Leave, Taxes and Death

Post by mjedlin66 »

fish8me wrote:bop, I believe your correct as I've read this from Jamison and Barfield newsletters...But they take out the taxes at 22% (my bracket), 6.2 SS tax, called the OASDI and 1.45 medi-care tax...
So, over a quarter of my 550 hours payment is taken...(but I should not be in the 22% bracket in 2021.) That's what I'm trying to alleviate...
If you receive payment for these hours in 2021, then it is 2021 W2 income.

And if they withhold at 22% but your 2021 effective tax rate is lower than 22%, then you will get that money back when you file your 2021 return in April 2022.

You could reduce your withholding on your pension (is this possible?) to get more of that money back before April 2022.
Owner/creator of TSPcalc.com - "Know your numbers"

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mjedlin66
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Re: Annual Leave, Taxes and Death

Post by mjedlin66 »

fish8me wrote: I understand that I can opt to retire this years (November 2020) after I reach my maximum require SS contributions ($8,537.40) and should receive my leave payment this year, 2020 and not have the 6.2% taken out.
Even if you get paid for this leave in 2020, and the 6.2% social security is not taken out, you're still going to have to pay back that tax in 2021.
Owner/creator of TSPcalc.com - "Know your numbers"

Wazzu82
Posts: 7
Joined: Tue Sep 15, 2015 10:13 pm

Re: Annual Leave, Taxes and Death

Post by Wazzu82 »

fish8me,
As stated above by bop and mjedline66, if you retire at the end of 2020 your annual leave lump sum check will be received in 2021 and therefore be part of your 2021 income. Yes they take 22% out (that's what was taken from my lump sum check in January 2019), plus OASDI and Medicare tax, and state income tax too if you don't live in a state with no income tax....in my case it was almost 35% taxes...but, when you file your 2021 taxes you'll get some of that federal income tax back, depending on whatever your effective tax rate is. So if all your income is below the 22% bracket for 2021 you'll get quite a bit back.

It comes down to a personal choice. Do you want/need the money? Or would you rather have the time off, or a bit of both? Most people maximize the money and take very little leave their final year of working.

fish8me
Posts: 14
Joined: Thu Jan 07, 2016 10:36 am

Re: Annual Leave, Taxes and Death

Post by fish8me »

Wazzu82, thanks for your response...35% is huge...but I can live with that till my filling in 2021 as my tax rate should be lower as you mentioned. I see that your also in Fl. so you dint have any State taxes (or maybe you moved here after retiring)???
What's one more year after 34 years of fed time.

Thanks to everyone for their responses.

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