Q: How is an annual leave buyout calculated? Is it “accumulated hours x current hourly wage”? Is this considered unearned income? I have also heard they take 40 percent in taxes for this.
A: Lump sum annual leave payments are calculated using the hourly rate of basic pay you would have received had you remained on the agency’s rolls. Therefore, if you were to retire before the annual pay adjustment becomes effective, any hours before that will be computed at the old rate and those after on the new rate. Any step increase that would have occurred after you retired won’t be included; you have to actually be on the job to receive that. For tax purposes, lump sum payments are treated as earned income. Check with your agency to find out what it will deduct from your payment.