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<blockquote data-quote="Kae3106" data-source="post: 1266268" data-attributes="member: 27557"><p>It's not really a 40% penalty...it's a tax issue. The IRS considers cashed out vacation time to be supplemental pay. This triggers supplemental tax which is a flat 25% federal rate. Add that 25% to the 6.2% FICA and 1.45% Medicare and your state's supplemental rate, and it starts to approach 40%.</p><p></p><p>If you know that your normal tax rate is less than this, you can tweak your W-4 for a while and have less federal or state tax taken out of your regular pay to offset it.</p></blockquote><p></p>
[QUOTE="Kae3106, post: 1266268, member: 27557"] It's not really a 40% penalty...it's a tax issue. The IRS considers cashed out vacation time to be supplemental pay. This triggers supplemental tax which is a flat 25% federal rate. Add that 25% to the 6.2% FICA and 1.45% Medicare and your state's supplemental rate, and it starts to approach 40%. If you know that your normal tax rate is less than this, you can tweak your W-4 for a while and have less federal or state tax taken out of your regular pay to offset it. [/QUOTE]
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