Q: I a Civil Service Retirement System Offset employee and I am trying to decide whether to retire Dec. 31, 2010, or Jan. 1 2011. I am in the Senior Executive Service and will have over 800 hours of annual leave for a lump-sum payout. If I retire Dec. 31, is that lump sum considered part of 2010 income or 2011? I believe I will not pay Social Security tax on the lump sum if it falls in 2010, since I usually have this covered by September of each year.
A: Your lump-sum payment is considered to be earned income in the year it is received. Therefore, regardless of whether you retire on Dec. 31 or Jan. 1, Social Security taxes would be taken out of that payment, along with federal taxes and state taxes (if applicable).
