Paid Vacation And A Question About Taxes

[ShotgunSteven]

If you were planning to quit your job and could either take your paid vacation time, receive a paycheque as normal and declare you were leaving towards the end of your time off, or get paid for it in a lump sum when you left, which would you do?

I currently have eleven weeks of paid vacation time saved up, and while I won't be leaving my job for another year or two, I should have at least that much when I do decide to leave even though I plan to use some of it during the interim.

I will be moving to another state when I do leave this job, so I can make arguments for both a lump sum and for continuing to get paycheques over the next several weeks before declaring that I won't be coming back.

Would there be any difference in how I was taxed depending on which I were to choose? Would there only be a difference if I were to continue receiving paycheques beyond the end of one calendar year and into another?

There are no state income taxes where I live, federal taxes only.

 

[MrBond]

Are all the options equally OK with your company?

I know it's not the same thing, but I know of at least one situation where a guy put in his two weeks notice before the scheduled two week plant shutdown (which he'd get paid for if he wasn't quitting) and they just told him "Yeah, we don't need you to come in anymore so you won't be getting paid for the shutdown time" and his last day was effectively the day he put in his notice.

When my Mom retired, she hadn't used much of her vacation for the year, but they wouldn't let her use her remaining vacation after her last day.

Scheduling a long vacation, then calling two weeks before it's up to put in your two weeks notice seems like something that your employer might not like. If they're OK with it, then that's probably the route I'd go with. I don't know how the taxes would work out if you took the lump sum (maybe ask payroll?), but it'd be nice to continue to get a paycheck during the transition period between jobs.

 

[DaveSimmons]

The end-of-year tax bill will be identical. How much is witheld right away will differ between being paid over several periods vs. in one big lump.

A lot of payroll programs will take out more now for a lump sum, as if you had moved into a higher salary range. So you'll lose more now, but get it back when you file your taxes.

 

[SoulAssassin]

I would take lump sum, yes the tax hit will be a little higher now, but assuming you dump it into something earning interest you can offset that. Think about it this way...no one takes the annuity with Powerball/Megamillions...everyone always takes the lump sum.