"Donations" of Sick/Vacation Time to Other Employees

[Christine Roberts]

Does anyone have any information about the tax treatment of unused vacation or sick time that is donated from one employee to another?

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[Sheila K]

Christine:

According to our payroll person, there is no special treatment for this situation. The person who accrued the time is donating it to the other person, so they have not actually "used" the time and are not taxed for it. The person receiving the donation will be able to use the time as though they had accrued it, so the payroll which includes the donated time will be taxed the same as a regular payroll.

Does this answer your question, or have I completely missed the point!?

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Good Luck!!!

Sheila K 8^)

602 683-1013

[Guest CLKeown]

Christine -

Sheila is correct. In a "Leave Sharing" plan, the person receiving the "donated" time is taxed on the payment for those hours, when the hours are paid.

The only other thing to watch out for is how the Sick Leave payments are reported to the IRS. There are different rules governing sick leave payments made by the employer vs. sick leave payments made by a Third-party Sick Leave plan.

For a more complete explanation see IRS Publication 15-A - Supplement to Circular E. You can download this from the IRS website:

http://www.irs.ustreas.gov/forms_pubs/index.html

Hope this helps.

Carole

[Kirk Maldonado]

Check out Revenue Ruling 90-29, 1990-1 CB 11.

[Christine Roberts]

Both cites (to Rev. Rul. 90-29 and Circular E) were helpful, but not completely consistent - the Rev. Rul. treats the donated time as the recipient's wages for purposes of income and employment tax witholding, while Circular E treats specifies withholding should apply to the donating third party if it is not an agent of the employer - an agent is one that bears no insurance risk and is reimbursed on a cost plus fee basis for the payment of sick pay. I can't think this was meant to apply to other employees under a leave sharing plan, but I also can't think that it was intended that the donating employees bear withholding tax obligations for the donated time. Any comments?

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[Kirk Maldonado]

Christine:

I think you might have been looking at the wrong portion of Publication 15-A. Read the text on page 11 under the heading "Leave Sharing Plans."

[mbozek]

While I have not reviewed the cites in previous posts I thought that under the Assignment of income doctrine income must be taxed to the person how earns it unless there is a statutory exception. I dont see how an employee can transfer accrued vacation pay to another person without being taxed any more than one employee can transfer accrued wages without taxation. I would be interested in the exception which applies to leave sharing plans.

[Kirk Maldonado]

mbozek:

As I stated in my earlier post:

Check out Revenue Ruling 90-29, 1990-1 CB 11.