Author Topic: Vacation Policy Revised - Advice Needed  (Read 2451 times)

BeginningToBudget

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Vacation Policy Revised - Advice Needed
« on: November 15, 2019, 11:54:35 AM »
Hello!

I'm from Wisconsin and my company has decided to completely reformat our Vacation Policy. Historically we get to roll-over vacation hours up to 240 hours and I'm not the best at taking vacation so I have quite a few hours ~210/215 range. It has been announced that starting next year it will be use it or lose it over the course of the year. However for this "transition" year they will give us two options:

1. Anyone with less than 79 hours will have all of their vacation roll over.
2. Anyone with 80+ hours will have 40 hours roll over and the rest paid out on our end of year paycheck.

I'm asking advice on if I should try to get my ATO down to the 79 hours so I won't get a pay out. I'll have to try and take a week or two off of work between now and December 31st. People are talking that the pay out would be taxed as a bonus and would be at a much higher percentage than our typical pay, so we would in theory lose additional money to taxes.

But I'm also sort of looking at it from the perspective that a Payout even if it is less due to taxes is going to be like an extra month of income, which if I take the vacation time I won't "see" the money in the same way because it won't affect my normal paychecks at all.

I'm leaning toward the payout at this point, but just wanted to see if anyone had additional insight or justification for why one option could be much better than another.

Thanks in advance!



 

Cranky

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Re: Vacation Policy Revised - Advice Needed
« Reply #1 on: November 15, 2019, 11:59:08 AM »
Is tax on a bonus really higher, or is it just that more is withheld from that check and you get the extra back when you file your taxes?

NotJen

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Re: Vacation Policy Revised - Advice Needed
« Reply #2 on: November 15, 2019, 12:05:53 PM »
People are talking that the pay out would be taxed as a bonus and would be at a much higher percentage than our typical pay, so we would in theory lose additional money to taxes.
It might be *withheld* at a higher rate, but it will be taxed as normal income, as part of the normal tax bracket schedule.  It will work out when you file your taxes.

I would probably do the payout, unless you were planning on taking an extra 79 hours of vacation next year over your normal amount.

Ann

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Re: Vacation Policy Revised - Advice Needed
« Reply #3 on: November 15, 2019, 12:16:31 PM »
As others have stated, I think that bonus are withheld at the highest projected tax rate ó after all, they are the ďlast dollarsĒ you make.  So withholding is high but when you file the money is all fungible and it will all be taxed as usual.  It isnít like taxing long-term or short-term capital gains ó itís all just earned income.

Someone please correct if I am wrong!

So I suggest you take a nice vacation this year and get paid out the rest.

PathtoFIRE

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Re: Vacation Policy Revised - Advice Needed
« Reply #4 on: November 15, 2019, 01:20:15 PM »
Withholding probably won't change, that's usually based on your W4 you submitted for this year.

In reality, every additional taxable dollar you earn is taxed at your marginal rate, whether it's at a higher rate than your other recent pay is mainly based on whether you were right at crossing over into the next tax bracket or not. [i.e. the $s earned in your last few months were all in the 12% bracket, but the bonus $s filled up the last of that bracket and those above got taxed at the 22% level]

Reasons you might actually pocket more $ from this bonus:
1) you were right at the cusp of the OASDI ceiling, and no longer have to pay the 6.2% part of the payroll tax on these additional dollars
2) your benefits withholding, like health insurance, etc., is generally not taken out of bonus, just regular pay
3) you had not maxed out 401k or other tax-deferred savings plans, and are able to direct the money into those and not have to pay any income tax

Padonak

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Re: Vacation Policy Revised - Advice Needed
« Reply #5 on: November 15, 2019, 01:23:22 PM »
What's going to happen next year with rolled over hours? Will you have to spend them? If so, I'd rather get a payout this year and roll over fewer hours to next year.

Bonuses are taxed the same as regular salary. Whatever extra they withdraw for bonus taxes you will get back as a refund next year.

ysette9

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Re: Vacation Policy Revised - Advice Needed
« Reply #6 on: November 15, 2019, 01:34:10 PM »
Take your vacation! You earned it. You deserve it. You need it for your own well being.

I never understood people who end up with a bunch of banned vacation hours. Time off is so critical to enjoying life.

NorCal

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Re: Vacation Policy Revised - Advice Needed
« Reply #7 on: November 15, 2019, 01:39:02 PM »
1. You will owe taxes on the payout.  There are no different taxes on a bonus or one time payment.  It will be taxed exactly like ordinary income.
2. Witholding on bonus type payments is higher due to the one-time nature of the payments.  I forgot the exact details of this, but it's not hugely material.  It works out to a couple percentage points if I remember correctly.  I wouldn't worry about this since you'll be filing taxes in a few months anyways.

Take a vacation if you want one.  Otherwise, take the payout.

You'd have to take over 3 weeks off in the next 45 days to avoid the payout altogether.  So it could be a really awesome vacation.

mm1970

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Re: Vacation Policy Revised - Advice Needed
« Reply #8 on: November 15, 2019, 02:00:52 PM »
No question I'd take the vacation vs payout.  I was having a convo with a coworker about our "cap" on accrual.  I've been here longer than most people and earn the max.

I got no idea what the cap on accrual is.  I never even come close...but then, I have kids.

MDM

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Re: Vacation Policy Revised - Advice Needed
« Reply #9 on: November 15, 2019, 02:01:54 PM »
Probably the bonus will be treated as "Supplemental Wages" and federal withholding will be 22%.  See https://www.irs.gov/pub/irs-pdf/p15.pdf.

As others have noted, that's just the withholding.  How much of the bonus you actually owe to the IRS will be determined when you file and combine all your income and withholding.  It could be 22% or less or more.

Only you can decide the time vs. money choice....

robartsd

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Re: Vacation Policy Revised - Advice Needed
« Reply #10 on: November 15, 2019, 02:09:38 PM »
What happens to the hours at the end of 2020? Will unused time be cashed out or forfeited? If you historically have not used all of your vacation time, why would you want to maximize the amount you roll over into the new use it or lose it policy unless a second cash out opportunity is offered next year? Can you request cash out of ALL of the hours?

The cash out will be ordinary income, taxed at your marginal rate (though withholding may be higher). Do you already maximize contributions to tax advantaged accounts? If not, can you arrange to contribute a significant portion of the lump sum into a tax deferred account? Ideally, you'd be allowed to contribute up to 100% of the cash out (after FICA taxes) to your 401k with this employer (provided you have the contribution space remaining); but for tax purposes, contributing to a tIRA or even your spouse's (assuming joint filing) employer sponsored deferred compensation plan would be just as effective for tax purposes.

bacchi

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Re: Vacation Policy Revised - Advice Needed
« Reply #11 on: November 15, 2019, 02:21:02 PM »
I always chose vacation time unless I needed the money.

Take enough vacation to get below 80 hours. Enjoy the time off.

Roll over the rest and do the same next year.

DeniseNJ

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Re: Vacation Policy Revised - Advice Needed
« Reply #12 on: November 15, 2019, 02:21:23 PM »
Take the money then next year you can have a nice vacay since you'll have banked an extra 40 hours AND have cash to spend on holiday.

pk_aeryn

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Re: Vacation Policy Revised - Advice Needed
« Reply #13 on: November 16, 2019, 10:26:15 PM »
Maybe this is a CA thing, but Iíve calculated Im taxed any bonus money at 45% all inclusive of federal and state taxes, though itís supposed to work out at the end of the year.

My question for you on what to do is to ask these things: 

Do you really feel like you need a vacation, and have been generally discouraged by culture or management to take it?  Is this policy change able to let you take time off you maybe otherwise couldnít?  If yes, take the time.

Otherwise, to an early retirement goal oriented Mustachian, a forced vacation payout is an excellent way to throw extra money into an index fund or PAY OFF DEBT.

If you have any debt other than a mortgage, take the payout.

MDM

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Re: Vacation Policy Revised - Advice Needed
« Reply #14 on: November 16, 2019, 11:04:10 PM »
Maybe this is a CA thing, but Iíve calculated Im taxed any bonus money at 45% all inclusive of federal and state taxes, though itís supposed to work out at the end of the year.
Have you figured out the difference between "withheld" vs. "taxed"?

minimustache1985

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Re: Vacation Policy Revised - Advice Needed
« Reply #15 on: November 17, 2019, 09:12:15 AM »
Take the payout, as others have said the taxes may be higher for withholding but itíll all be ordinary income at filing time.  If you arenít maxing youíre 401 or the payout will occur early in the year you can increase your 401k percentage substantially to minimize that.  When expecting a large bonus in Q1 Iíve done that to reduce bonus withholding and front load my 401 a bit, then changed the percentage down to normal (or lower than normal to max in December since my employer at the time did the match check by check meaning that maxing out early cost me match money).

Since you are historically bad at using all your vacation and are moving to a use it or lose it, 40 rollover hours plus what you get annually will already be a LOT to take next year.  Iíd minimize vacation this year to max the payout and plan to take every day of it next year and going forward.

pk_aeryn

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Re: Vacation Policy Revised - Advice Needed
« Reply #16 on: November 17, 2019, 10:17:50 AM »
Maybe this is a CA thing, but Iíve calculated Im taxed any bonus money at 45% all inclusive of federal and state taxes, though itís supposed to work out at the end of the year.
Have you figured out the difference between "withheld" vs. "taxed"?

Yes I mentioned in my post that it all works out in the end - but my point was, almost half of the money is withheld, which is quite a lot and usually more than people are expecting when they take a bonus payout, so be prepared to not see half of it right away.

Dicey

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Re: Vacation Policy Revised - Advice Needed
« Reply #17 on: November 17, 2019, 11:16:51 AM »
Is tax on a bonus really higher, or is it just that more is withheld from that check and you get the extra back when you file your taxes?
This is the way it works. IMO, that's just an incentive to get your taxes submitted earlier.

Chrissy

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Re: Vacation Policy Revised - Advice Needed
« Reply #18 on: November 17, 2019, 12:52:06 PM »
Take as much of the vacation time as you can, because it's worth more, monetarily, than the payout.  Vacation TIME comes with 401k match and health care vs. vacation PAYOUT which doesn't.

seattlecyclone

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Re: Vacation Policy Revised - Advice Needed
« Reply #19 on: November 17, 2019, 03:28:48 PM »
I'm going to be a bit of a contrarian and say to take the payout. You previously haven't been using your vacation time as fast as you accrue it. Do you plan to change this behavior next year? It sounds like beginning next year you'll be on a strict use-it-or-lose-it policy. What's going to be better for you: rolling over 79 hours that you'll probably just forfeit at the end of next year anyway, or getting paid for all but 40 of your vacation hours now? If you're going to commit to actually using your vacation going forward my answer might be different, but my guess is that whatever factors in your job led you to choose not to use your vacation thus far aren't changing with this policy change, and so you'll probably be better off with the cash.

Villanelle

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Re: Vacation Policy Revised - Advice Needed
« Reply #20 on: November 17, 2019, 03:38:20 PM »
Do you WANT to take a vacation? 

If I would only be taking the hours as part of a strategy, rather than because I wanted to get some serious time out off the office, then I'd just take the payout. 

Also, even if you use them down to 79 hours, if seems very likely you will just accumulate and not use more hours next year, which you would then lose at year end.  (Is there any reason to believe your vacation-taking habits will change?  Maybe you were only not taking them because you were working to accrue them and you are fairly confident that without that option, you will take and enjoy more time off.  But if that doesn't sound like what will happen, then it seems silly to get down to 79, only to lose time next year.)  So it would make more sense to get down to 40 via a payout.   

Then next year you only need to take whatever you accrue over the maximum (which sounds like it might be 79 at year end, going forward?). 

Dicey

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Re: Vacation Policy Revised - Advice Needed
« Reply #21 on: November 18, 2019, 04:24:05 AM »
On the off chance that this will apply to your situation, check your state laws. My last company was headquartered in another state and they tried to enact a similar rule. My state doesn't allow "use it or lose it". I protested and they had to abandon the policy, for the win.

Linea_Norway

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Re: Vacation Policy Revised - Advice Needed
« Reply #22 on: November 18, 2019, 06:02:03 AM »
I never understood people who saved up so many vacation days at the end of the year without having a plan with them. I always value free time more than money and it is not so easy to get free, even if you want to take up unpaid free. So why not take them up at the best time of the year for it? I have through the years always taken up all my overtime hours as days off, rather than having them paid out. Except for once, when I had so much stress at work that I didn't feel that I had the time to take days off. That money was just invested like any of my other left-over money.

In your case, if you feel that the remainder of the year would be a good season to take time off, then just take it off to get under that 79 hour limit. And plan a proper vacation next year at some time that is optimal for you for the remainder of the hours. Otherwise, just take the money and invest it.

robartsd

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Re: Vacation Policy Revised - Advice Needed
« Reply #23 on: November 18, 2019, 10:01:04 AM »
On the off chance that this will apply to your situation, check your state laws. My last company was headquartered in another state and they tried to enact a similar rule. My state doesn't allow "use it or lose it". I protested and they had to abandon the policy, for the win.
Good point about checking state laws (especially if the policy comes from an out-of-state HQ which may not have researched your state laws enough).

Wisconsin does allow use or lose policy:
Quote
An employer may implement a ďuse-it-or-lose-itĒ policy requiring employees to use their leave by a set date or lose it, so long as the employee has agreed to the policy in writing. See Sinclair v. Hillhaven Corp., 161 Wis.2d 935, 469 N.W.2d 249 (Ct. App. 1991).
https://www.employmentlawhandbook.com/leave-laws/state-leave-laws/wisconsin/

I could see potential for challenging the requirement to use or have the vacation time cashed out based on the fact that it was earned before this new policy was agreed to. A successful challenge could allow you to roll forward up to 240 hours of old vacation time indefinitely (but never more that the amount rolled forward from the previous year).