AboutJohn Stancil, CPA Expertise I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 30 years. I am a member of the AICPA, National Society of Tax Professionals, and the Institute of Management Accountants.
Experience I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CFM, and CIA. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I write a monthly tax column for the local newspaper.
Question Recently our company sold out. I had 80 hrs. vacation they paid out, taking 25% out for federal taxes. When I questioned this they said this is the IRS law because it was paid out in a total sum. If Id gotten a week's pay or taken the vacation I wouldnt have been taxed so high. Is there a law that allows them to legally tax me at this high of a rate? Thank you...Cindy Hall
Answer Cindy,
Thanks for your question.
As a matter of fact, there is such a law. IRS regulations require that the employer use one of two methods for supplemental income payments. Your payment falls under that category.
Method one, which they used, simply takes 25% out for taxes.
Method two can be used if the payment is included in your regular wages. The appropriate amount would be withheld using your normal pay period. For example, if you are paid weekly, they would have to use the weekly pay period brackets to determine the amount of withholding. Most likely this method would result in a greater amount being withheld.
Just in case you are interested, this information is contained in Revenue Ruling 2008-29 issued by the IRS.
