Q. I have 37 years civil service with the government (CSRS) and plan to retire either Dec. 31, 2012, or Jan. 1, 2013. If I do not use any of my use-or-lose leave and I retire Jan. 1, 2013 will I get paid for the use-or-lose leave for 2012 and 2013 in one lump sum? How is this sum taxed?
A. Lump-sum payments for unused annual leave are taxed as earned income. FYI: The 2012 leave year ends Jan. 12, 2013. If you retire Dec. 31, 2012 (a Monday), or Jan. 1, 2013 (a Tuesday), you wouldn’t be retiring at the end of a pay period. Therefore, you wouldn’t earn any additional annual or sick leave for the days that you were still on the rolls after the preceding pay period closed.