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Social security calculation and vacation buyout

I plan to retire the end of 2023.  I will have 30 days of unused vacation time which will total over $9,000.  I have been informed that my unused vacation pay will be included in my last paycheck.  Considering how social security allowance is calculated based on annual income, I am trying to determine what retirement date is to my best advantage.  Is it more to my advantage to retire as of December 31st which would include my vacation pay in my total income earning for 2023 (which would also be my highest ever annual income total); or should I retire in January 2024 and receive the vacation payout in a new tax year where is will be subject to a lower income tax rate?  Thank you.  Karen

1 Reply
Employee Tax Expert

Social security calculation and vacation buyout

Hi KAW1962!


According to the SSA information found here:  https://www.ssa.gov/pubs/EN-05-10063.pdf


"After you retire, you may receive payments
for work you did before you started to receive
Social Security benefits. Usually, those
payments will not affect your Social Security
benefit if they are for work done before you
retired...Some special payments to employees
include bonuses, accumulated vacation or sick
pay, severance pay, back pay, standby pay,
sales commissions, and retirement payments"


Since this won't go against your allowable Social Security earnings for 2024, and you would be in a lower tax bracket, it may be the most advantageous from a tax stand point to wait.   However, there are other life factors to consider when retiring.


Hope this helps!



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