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Question for the Money Doctors

Question submitted on Jan 14, 2014.

Question

Our company plans to make a retirement payment to any employees who retire from the company (1 month for every year with the company). When we make the retirement related payment to the employee, what options are available to label this retirement payment on the employee''s W2? If we label the retirement payments as income, then some employees may not qualify for the social security benefit because they may go over the income threshold. Are there any other options to label this retirement income other than income?

Answer

If the payments are for compensation for past services, the income does need to go on the employee's W2. That income is "earned income" and is the kind that causes people to have to repay their social security benefits.

If the payments are for "retirement" and comes from the company pension plan, then that income would be reported on on form 1099-R which is not "earned income" and would not cause a reduction in social security benefits.

This is a complex questions and should be discussed with a competent CPA/PFS who knows tax tax. To find one in your area, click on this link:

http://apps.aicpa.org/credentialsrefweb/PFSCredentialSearchPage.aspx


For additional information visit http://www.360financialliteracy.org/