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PA Vacation pay

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  • PA Vacation pay

    My employer is relocating their corporate office from PA to another state, I'm not relocating with the office. Employees were verbally told they would receive "compenstation" for staying with the company until the close of the corp. office in PA (i.e. a severance/separation package). Now I have heard they are going to pay employees for any unused vacation in the severance/separation package. My question is can they compenstate for vacation in a severance package being a severance package will be taxed at a higher rate than vacation would be taxed under normal circumstances?

  • #2
    If the severance is paid in a lump sum, it's considered supplemental wages under IRS guidelines. Lump sum vacation payouts at termination are also defined as supplemental wages. If the employer so chooses, they may tax supplemental wages at the default rate of 25% Federal Income Tax; your state has a flat rate (if I remember correctly) regardless of the type of earnings.
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