EE Term/Full Election

[Guest moseelig]

If an employee terminates in the middle of the year, having been deducted say half of their election, but they claim the full amount of their election, isn’t the second half really a taxable income to the employee? Why would the IRS not want us to withhold the full election on termination? It’s not a matter of an elimination of the risk of loss to the employer, it is a case of the employee potentially receiving un-taxed income.

[oriecat]

It's not taxable income, because it falls under the exclusion from income in IRC 105.