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Delayed Vacation Payout

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  • Delayed Vacation Payout

    First the background:
    I worked for a company for almost 5 years and starting last Feb I began accruing 15 days a year or 10 hours a month. The company has a payroll policy to payout the 15th and end of month.

    at the beginning of Dec I gave notice to have my last day be Dec 28th. One of the main reasons that I did this was to finalize my employment with the company in 2005 so that I didn't have to show them on my 2006 taxes. This is where the problem begins. At first the were not going to pay me for my vacation time(company policy) until Jan 15th because they "weren't" informed of my resignation until the 27th of Dec. After some discussion they agreed to cut me a check and ship it out to me. When I got the check I realized it was short. What had happened was they only paid me for 10 accrued days for 2005 instead of 15(give or take the 3.something hours). After further discussion they have agreed to pay me for the extra time, but here lies the problem. They are paying me in 2006 towards my 2006 taxes.

    Is this legal? I did not do any work for them in 2006 but I am going to have to show them as being an employer/source of income, in 2006.

    Any explanation would be greatly appreciated.

  • #2
    Well, since it's already 2006, they can't very well pay you in 2005 now. And if you receive the money in 2006, it must go to your 2006 taxes, regardless of when it was earned. It isn't any different than if the last day of your last pay period for 2005 was, say, December 28; the hours you worked on December 29, 30 and 31 will be on your first paycheck in 2006 and thus go to your 2006 taxes. It's not only legal, it's the only possible way for them to do it.

    Just out of curiousity, what state are you in?
    The above answer, whatever it is, assumes that no legally binding and enforceable contract or CBA says otherwise. If it does, then the terms of the contract or CBA apply.


    • #3
      Isn't there a way for the to cut a check in 2006 but have it applied towards the 2005 tax season?
      I am in NY.


      • #4
        Taxes, Cash Basis, and Constructive receipt

        There is no "tax season". There is a tax year, and for the vast majority of individuals, it is a calendar year. Further, if you operate on a cash basis, rather than an accrual basis, you report income in the year in which is is received. That is true regardless of the source of income.

        Unless you have incorporated yourself, it's nearly impossible to not be on a cash basis, and to report income in the calendar year in which it is received. If your former employer paid you in 2006, you report the income in 2006, and they report the expense in 2006. Pot's right.

        I can't imagine why it would be a problem, unless your projected income had increased or decreased so significantly that a lump sum vacation payment would have a substantial effect.


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