Federal Tax, Helpful COVID-19 Links

Vacation Buy Back

How should employers treat “vacation buy back” for tax withholding purposes? Some companies are offering employees the option of “cashing in” accrued vacation time because many are working remotely due to COVID-19. For payroll purposes, employers should treat the payments as regular wages. Whether the vacation leave is taken or not, the wages are subject to federal income tax withholding, FICA and federal unemployment tax. Employers that offer employees the option of “cashing in” accrued leave must report the value of the leave as income when it’s earned and made available, not when the checks are issued to employees. Contact us if you need assistance. © 2020