Author Topic: PTO (Paid Time Off) conversion to cash  (Read 5091 times)

FrugalSaver

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PTO (Paid Time Off) conversion to cash
« on: March 25, 2017, 11:21:58 AM »
For those that have worked at companies that do this, when they pay out PTO, are taxes taken out?  Does your 401k allocation get deposited as well? 

Or is it just paid out in full at your hourly rate (for example, if you make $50 / hour and you convert 40 hours of PTO to cash, does your company deposit $2,000 into your bank account?

Optimiser

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Re: PTO (Paid Time Off) conversion to cash
« Reply #1 on: March 25, 2017, 11:48:53 AM »
I'm fairly certain it works just like any regular time at my work. Taxes are taken out and 401(k) contributions are taken out and matched.

Dicey

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Re: PTO (Paid Time Off) conversion to cash
« Reply #2 on: March 25, 2017, 11:54:28 AM »
Probably depends on your employer. My last one was pretty stupid. Best advice is to check in advance of requesting a payout.

spjulep

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Re: PTO (Paid Time Off) conversion to cash
« Reply #3 on: March 25, 2017, 01:37:27 PM »
Some places are able to put the full payout into your pre-tax 401k, worth checking on this. One company I worked out taxed the PTO payout at a bonus rate (higher than my regular tax rate), which was irritating.

1967Goat

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Re: PTO (Paid Time Off) conversion to cash
« Reply #4 on: March 25, 2017, 05:02:20 PM »
Are you leaving the employer, or just converting your PTO into cash?  I've never had an employer willing to do that.  I've been paid PTO when I left though, and as the previous poster said, my PTO was taxed at a higher rate.

If my employer was willing to payout my PTO without me leaving I would jump on it!  I hoard my PTO...I think I have over 240 hours now.  We max out/stop accruing at 350 hours.

triangle

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Re: PTO (Paid Time Off) conversion to cash
« Reply #5 on: March 25, 2017, 05:58:06 PM »
Yes, when taking PTO you should get paid your current salary/hourly wage and all the normal payouts should occur, e.g. 401k contributions, SS, tax withholding, etc. And you should even be earning more PTO while you are on PTO. :-) 

Your PTO is a future and ever increasing liability to your employer, which is another reason there are usually caps on how much you can build up and carry forward. Otherwise you could really game the system by accruing PTO one year at salary X and taking it many years later getting paid at your then higher salary X+Y.

Dicey

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Re: PTO (Paid Time Off) conversion to cash
« Reply #6 on: March 26, 2017, 07:21:00 AM »
One company I worked out taxed the PTO payout at a bonus rate (higher than my regular tax rate), which was irritating.
Oh yes, this was another way my former company was stupid. Only they did it every.single.month with our commission checks... So happy to be FIRE!

cacaoheart

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Re: PTO (Paid Time Off) conversion to cash
« Reply #7 on: March 26, 2017, 08:50:53 AM »
My employer allows PTO to be sold back at 90% of face value and it is taxed at the supplemental payment level, which appears to be 25%.

GoingConcern

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Re: PTO (Paid Time Off) conversion to cash
« Reply #8 on: March 26, 2017, 08:53:28 AM »
One company I worked out taxed the PTO payout at a bonus rate (higher than my regular tax rate), which was irritating.
Oh yes, this was another way my former company was stupid. Only they did it every.single.month with our commission checks... So happy to be FIRE!

Your company was required to withhold 25% by the IRS. At the end of the year you would of gotten back whatever you were owed since bonus checks is still ordinary income and is not taxed at a different rate.

Daisy

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Re: PTO (Paid Time Off) conversion to cash
« Reply #9 on: March 26, 2017, 01:56:16 PM »
I don't understand this concept. You should be using your PTO,  not cashing it out!

Once I realized banking PTO right before quitting meant it would get hit by income tax, SS tax, and Medicare tax, I realized it was much better to use the time off.
« Last Edit: March 26, 2017, 01:58:00 PM by Daisy »

Khan

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Re: PTO (Paid Time Off) conversion to cash
« Reply #10 on: March 27, 2017, 12:22:58 AM »
I don't understand this concept. You should be using your PTO,  not cashing it out!

Once I realized banking PTO right before quitting meant it would get hit by income tax, SS tax, and Medicare tax, I realized it was much better to use the time off.

Personally, I sell(some) of it back because my company pays time and a half for PTO CashIn(the same deal exists for vacation time, but I have my limits)(I get floating holiday time, sick time, and vacation time, all in separate buckets, with different restrictions and rules on each. I'm only speaking of selling back my sick time, which I could use on vacations if I wished). I can do a bit more with the going rate of a day of work(and would love more overtime to soak up the $'s) than I can with the time off, for now. The calculation changes as I get more towards the FU money stash/FI and older end of the spectrum though, and I also have a pre-FIRE break planned which changes things up for my specific situation, but that's my thoughts.

It's another 3-5% of pay I can get per year. A day at work instead of taking the time off is basically $500 in lost potential income. And if we do a quick calculation that we all love, $500 saved means $20/year essentially in perpetuity, or $1000 in value 10 years from now.(or ~4k in value 30 years from now). For my specific situation, that day of working is basically equivalent to a week of not working during my employment break, which I'd rather think of than a day off, today.

(My employer takes out some percent of PTO cashin as taxes automatically, and they also have settings you can hit to make it automatically fill up 401k at a different percent than regular paychecks. Your PTO cash in value will depend on state laws and the employer themselves.)
« Last Edit: March 27, 2017, 03:22:59 AM by Khanjar »

NoStacheOhio

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Re: PTO (Paid Time Off) conversion to cash
« Reply #11 on: March 27, 2017, 06:52:00 AM »
I don't understand this concept. You should be using your PTO,  not cashing it out!

Once I realized banking PTO right before quitting meant it would get hit by income tax, SS tax, and Medicare tax, I realized it was much better to use the time off.

You still pay all those taxes when you use it. It's just spread out over time.

My employer allows fractional PTO cash-in for hourly employees (I forget the exact number, but it's not great), or full-value benefits contributions (health insurance, mostly). It coincides with open enrollment.

SpareChange

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Re: PTO (Paid Time Off) conversion to cash
« Reply #12 on: March 27, 2017, 09:24:03 AM »
I'm allowed to cash out 80 hours per year at 75% value, which I do every year. I keep my pto bank large and growing so I can decline disability insurance.