Topic: Tax question

[Always THE HERD]

To you tax guru's.....
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The company I worked for filed for chapter 11 bankruptcy. With that company I had banked vacation. This vacation could be taken with our supervisor's approval OR could be awarded in a cash settlement upon retirement. The court aproved for the company's request to "do away with this" and make an award to each employee with this type vacation in the amount of "roughly" 1-2% of the actual value. My question is this: can I count this as some type of a loss on my taxes?

[s1uggo]

To you tax guru's.....
~
The company I worked for filed for chapter 11 bankruptcy. With that company I had banked vacation. This vacation could be taken with our supervisor's approval OR could be awarded in a cash settlement upon retirement. The court aproved for the company's request to "do away with this" and make an award to each employee with this type vacation in the amount of "roughly" 1-2% of the actual value. My question is this: can I count this as some type of a loss on my taxes?

I am not a CPA, but how is this a loss?  I know you were suppose to earn x, but you only earned 92% of x, which is the number you will pay taxes on, your income.  I am be missing something, and for your sake I hope I am, but I dont know where you would claim this 'loss', to me you just didnt earn as much as you were promised, so you'll pay tax on a lessor amout. 
we all lose in a bankruptcy.

[Herdmeister]

I would have to agree with S1uggo on this one. You can't loose what you didn't have. The anticipation of getting something and not getting has no loss value.

[k00laid]

Also not a tax person but I do know that vacation leave as opposed to sick leave does hold monetary value as long as it actually accrues. One of the tricks Tech startups are using now is to have "unlimited vacation time" which 1) doesn't accrue so it has no value to be paid out and 2) they know you won't have time to use much if you want to keep your job. I would definitely consult  professional about this.

[banker]

Whether or not it has value is not relevant to the tax issue.  Think of it this way, if you claim it has value then you have to claim the value and then, since you didn't receive it, you deduct the value.  Alternatively, you can say it has no value and then don't go through the issue of adding and subtracting it.  Either way you get the same answer.

Unless you were paying taxes as the value of those days accrued, as they accrued, you have no loss to take.

[herdgadfly]

First of all, personal income taxes are paid on a cash basis - you simply do not pay taxes based on non-exempted employment benefits payable - else you would have been paying for earnings not yet received in all years prior to this bankruptcy. Some protections have been provided by Congress to protect pensions, for example, from looting by cash-strapped companies - but even that protection is not completely effective.

As for the bankruptcy itself, employees are entitled to file claims with the bankruptcy court and if viewed favorably by the judge, they are given priority over vendor claims and behind mortgage, contract and bond holders on any payouts made. If you recall, the Obama regime influenced the judge to give priority to UAW claims over bondholders in direct violation of bankruptcy law in the GM and Chrysler bankruptcies.

[MarshallGrad]

Also not a tax person but I do know that vacation leave as opposed to sick leave does hold monetary value as long as it actually accrues. One of the tricks Tech startups are using now is to have "unlimited vacation time" which 1) doesn't accrue so it has no value to be paid out and 2) they know you won't have time to use much if you want to keep your job. I would definitely consult  professional about this.

Paying out accrued vacation time is not a legal requirement, it is a company policy. Some companies have a policy to pay all accrued if you leave, some pay a percentage, and some pay nothing. A company wouldn't need to offer unlimited vacation to avoid paying out a lump sum.  In some companies, accrued sick leave can be applied towards years of service when calculating retirement eligibility. In those cases, sick leave very much has monetary value.

As was stated in another response, if the OP did not pay taxes on the value of the vacation time, which would never happen, nothing would exist to claim a deduction for. It would have to fall into a "credit" category, which it doesn't.

It seems at best it could be a breach of contract if the benefit was promised, but the courts appear to have already ruled on that, in thier favor.

[BerkshireHerdFan]

Paying out accrued vacation time is not a legal requirement, it is a company policy.

Depends on the State, here in Massachusetts, earned vacation is considered earned income and must be paid out when employment ends. Vacation pay is part of your overall compensation package.

[MarshallGrad]

Depends on the State, here in Massachusetts, earned vacation is considered earned income and must be paid out when employment ends. Vacation pay is part of your overall compensation package.

The Massachusetts law is really just an enforcement of an oral or written contract not a specific law about vacation time requirements. The court ruling was that an employee shall be paid for any holiday or vacation payments due an employee under an oral or written agreement. Under Massachusetts law, an employer can have a use it or lose it policy that would not require payment of unused vacation. It is all about corporate policy, assuring that the company keeps its end of the contract. In the OP's case, Chapter 11 makes that contract with employees a moot issue.

[Flat Tire 2]

To you tax guru's.....
~
The company I worked for filed for chapter 11 bankruptcy. With that company I had banked vacation. This vacation could be taken with our supervisor's approval OR could be awarded in a cash settlement upon retirement. The court aproved for the company's request to "do away with this" and make an award to each employee with this type vacation in the amount of "roughly" 1-2% of the actual value. My question is this: can I count this as some type of a loss on my taxes?

You can check the below link and find the state in question.

http://www.shrm.org/LegalIssues/StateandLocalResources/StateandLocalStatutesandRegulations/Documents/paymentupontermination.pdf

[Always THE HERD]

FYI....the value of this banked vacation was over $26,000......as part of the judge's decision I received approx. $162.00 after taxes.
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This was imo a "huge" loss.

[Olen]

Paying out accrued vacation time is not a legal requirement, it is a company policy. Some companies have a policy to pay all accrued if you leave, some pay a percentage, and some pay nothing. A company wouldn't need to offer unlimited vacation to avoid paying out a lump sum.  In some companies, accrued sick leave can be applied towards years of service when calculating retirement eligibility. In those cases, sick leave very much has monetary value.

As was stated in another response, if the OP did not pay taxes on the value of the vacation time, which would never happen, nothing would exist to claim a deduction for. It would have to fall into a "credit" category, which it doesn't.

It seems at best it could be a breach of contract if the benefit was promised, but the courts appear to have already ruled on that, in thier favor.

MG, I could be misunderstanding both of your posts in this thread, and if so, I apologize; but something about what you have posted isn't getting through to me.

In college, I worked at K-Mart for about 18 months.  At one point, my wife also worked there (before I did).  In 2003 or 2004, a solid 8 or 9 years after we both had quit our retail jobs and moved on, we both received settlements because a former K-Mart employee sued the corporation on behalf of a class of employees for K-Mart's failure to pay out cash-equivalent for accrued vacation time.  My recollection is that when an employee would notify K-Mart management of their intent to quit (two-week notice), K-Mart was not offering the employee the opportunity to use the vacation days before ending employment and was not even indicating to the employee that vacation time had accrued that had value.  Thus, the class action suit.

Our settlements worked out to be about $4000 and $1500 each, hers to mine (she worked their longer), with each amount inflated because of interest that had accrued on the value since our time there.  It made our taxes a little maddening for that year, since we both received W-2, 1099-Misc, and 1099-Int income statements from K-Mart post-settlement. 

All that to say - in WV, it seems that accrued vacation time has value, and when converted from an intangible to tangible form (cash equivalent), is also taxable.

Not having experience with bankruptcy, I have no idea if or whether it should make a difference concerning accrued vacation owed to former employees.

FWIW.

[MarshallGrad]

FYI....the value of this banked vacation was over $26,000......as part of the judge's decision I received approx. $162.00 after taxes.
~
This was imo a "huge" loss.

I think it would feel like a big loss to anyone. Chapter 11 is corporate welfare, funded by those that are getting ripped off.

[MarshallGrad]

MG, I could be misunderstanding both of your posts in this thread, and if so, I apologize; but something about what you have posted isn't getting through to me.

In college, I worked at K-Mart for about 18 months.  At one point, my wife also worked there (before I did).  In 2003 or 2004, a solid 8 or 9 years after we both had quit our retail jobs and moved on, we both received settlements because a former K-Mart employee sued the corporation on behalf of a class of employees for K-Mart's failure to pay out cash-equivalent for accrued vacation time.  My recollection is that when an employee would notify K-Mart management of their intent to quit (two-week notice), K-Mart was not offering the employee the opportunity to use the vacation days before ending employment and was not even indicating to the employee that vacation time had accrued that had value.  Thus, the class action suit.

Our settlements worked out to be about $4000 and $1500 each, hers to mine (she worked their longer), with each amount inflated because of interest that had accrued on the value since our time there.  It made our taxes a little maddening for that year, since we both received W-2, 1099-Misc, and 1099-Int income statements from K-Mart post-settlement. 

All that to say - in WV, it seems that accrued vacation time has value, and when converted from an intangible to tangible form (cash equivalent), is also taxable.

Not having experience with bankruptcy, I have no idea if or whether it should make a difference concerning accrued vacation owed to former employees.

FWIW.

You are describing a somewhat similar scenario that resulted in the Massachusetts ruling. In your case, there was a corporate policy to pay you or let you use it and they did not respect the contract they had with the employees. By your description, the courts made them honor their contract. As with Massachusetts, it is more a breach of contract response than a legislative position on vacation pay rights.

The issue of value is one thing. The issue of tax deduction is another. You cannot take a deduction on money you never received. In your case, the IRS took their share of the "value" of your vacation only when you received the "value" in hard cold cash. There was no "value" applied to your vacation pay until it became income to you. Once they paid it to you in income, Uncle Sam made you pay some to him. You could be at a company for 10 years with an accrued "value" of $10,000 in vacation pay. But there is no taxing it until you get paid.

The difference between you and  Always THE HERD is that his company filed for bankruptcy. That changes everything about everything. When the courts awarded him $160 for his vacation, they were agreeing that he deserved the $26000, but the bankruptcy process is what turned the $26000 into a week's worth of groceries.

[s1uggo]

FYI....the value of this banked vacation was over $26,000......as part of the judge's decision I received approx. $162.00 after taxes.
~
This was imo a "huge" loss.

that sounds like a big loss!!  I would be ticked too.  That said, on your w-2 they added $162 to it, so you pay taxes on that amount, not the $26,000 you were owed.  You say, well I lost $25838!!  But not really, you never had it!!  Think of it this way.  Say you buy apple stock, you pay $80 per share, it goes up to $120 per share, and you hold on, now a year later you have to sell, you need the money,  apple stock is now $90 per share.  You pay tax on the $10 gain ($90-$80) but you dont get to write off the $30 loss of the opportunity  (selling at $120-$90=$30 lost opportunity).  You have an opportunity loss, which to my knowledge you cant write off (I could have made $26,000 I only made $162.00)

[BerkshireHerdFan]

The Massachusetts law is really just an enforcement of an oral or written contract not a specific law about vacation time requirements. The court ruling was that an employee shall be paid for any holiday or vacation payments due an employee under an oral or written agreement. Under Massachusetts law, an employer can have a use it or lose it policy that would not require payment of unused vacation. It is all about corporate policy, assuring that the company keeps its end of the contract. In the OP's case, Chapter 11 makes that contract with employees a moot issue.

Sorry  not how I read it.

The Massachusetts Payment of Wages Act, M.G.L. c.149, §148, requires employers to pay a discharged employee his or her wages in full on the date of discharge. Employees who quit must be paid by the employer’s next regular payday.

Importantly, the final “wages” owed at departure include more than just the employee’s salary. Employers must also pay departing employees for all accrued and unused vacation time and for commissions which have been earned by the employee but not yet paid.

[goherd24]

that sounds like a big loss!!  I would be ticked too.  That said, on your w-2 they added $162 to it, so you pay taxes on that amount, not the $26,000 you were owed.  You say, well I lost $25838!!  But not really, you never had it!!  Think of it this way.  Say you buy apple stock, you pay $80 per share, it goes up to $120 per share, and you hold on, now a year later you have to sell, you need the money,  apple stock is now $90 per share.  You pay tax on the $10 gain ($90-$80) but you dont get to write off the $30 loss of the opportunity  (selling at $120-$90=$30 lost opportunity).  You have an opportunity loss, which to my knowledge you cant write off (I could have made $26,000 I only made $162.00)

It would be more like pulling it up and saying "Hey, i might buy that apple stock" when it is 20 bucks a share, then lookimg again once it is 120 a share and saying you lost the difference.

Either way, you are screwed.

[HerdBlizz]

You are describing a somewhat similar scenario that resulted in the Massachusetts ruling. In your case, there was a corporate policy to pay you or let you use it and they did not respect the contract they had with the employees. By your description, the courts made them honor their contract. As with Massachusetts, it is more a breach of contract response than a legislative position on vacation pay rights.

The issue of value is one thing. The issue of tax deduction is another. You cannot take a deduction on money you never received. In your case, the IRS took their share of the "value" of your vacation only when you received the "value" in hard cold cash. There was no "value" applied to your vacation pay until it became income to you. Once they paid it to you in income, Uncle Sam made you pay some to him. You could be at a company for 10 years with an accrued "value" of $10,000 in vacation pay. But there is no taxing it until you get paid.

The difference between you and  Always THE HERD is that his company filed for bankruptcy. That changes everything about everything. When the courts awarded him $160 for his vacation, they were agreeing that he deserved the $26000, but the bankruptcy process is what turned the $26000 into a week's worth of groceries.

You must still live at home or don't hardly eat if you think $160 is a weeks' groceries.....lol

[Olen]

You are describing a somewhat similar scenario that resulted in the Massachusetts ruling. In your case, there was a corporate policy to pay you or let you use it and they did not respect the contract they had with the employees. By your description, the courts made them honor their contract. As with Massachusetts, it is more a breach of contract response than a legislative position on vacation pay rights.

The issue of value is one thing. The issue of tax deduction is another. You cannot take a deduction on money you never received. In your case, the IRS took their share of the "value" of your vacation only when you received the "value" in hard cold cash. There was no "value" applied to your vacation pay until it became income to you. Once they paid it to you in income, Uncle Sam made you pay some to him. You could be at a company for 10 years with an accrued "value" of $10,000 in vacation pay. But there is no taxing it until you get paid.

The difference between you and  Always THE HERD is that his company filed for bankruptcy. That changes everything about everything. When the courts awarded him $160 for his vacation, they were agreeing that he deserved the $26000, but the bankruptcy process is what turned the $26000 into a week's worth of groceries.

My understanding is that the court enforced WV Code Sect. 21-5-4 and not any policy or contract, since we had accrued vacation time that is considered "wages" under WV Code.

[Always THE HERD]

You must still live at home or don't hardly eat if you think $160 is a weeks' groceries.....lol

~
HerdBlizz.....I thought the same thing....LOL

[MarshallGrad]

My understanding is that the court enforced WV Code Sect. 21-5-4 and not any policy or contract, since we had accrued vacation time that is considered "wages" under WV Code.

The key to this is that the enforcement of 21-5-4 does not inherently involve vacation pay. Vacation pay only comes into play if your company has a contract with the employee to pay it. If there is no such contract (e.g. company policy) that provides for accrued paid vacation then 21-5-4 would not require the company to pay it.

In part (but the most relevant part):

(c) Whenever an employee quits or resigns, the person, firm or corporation shall pay the employee's wages in full no later than the next regular payday. Payment shall be made through the regular pay channels or, if requested by the employee, by mail. However, if the employee gives at least one pay period's written notice of intention to quit, the person, firm or corporation shall pay all wages earned by the employee at the time of quitting.

There is no reference to accrued vacation or to its consideration as wages in WV Code Sect. 21-5-4. Any company in WV has a right to offer paid vacation or offer no paid vacation. It is the company that sets that policy, creating a contract with the employee. There is no regulatory statue that mandates paid vacation. IF your company has a policy that includes paid vacation, the courts ruled that that company is bound to honor that. If your company has no paid vacation policy, 21-5-4 only applies to requiring any unpaid salary or wages be paid by a certain date. If you company has a "use it or lose it policy", 21-5-4 does not apply.

21-5-4 states whatever is owed by employer to employee must be paid within a prescribed time frame. What constitutes what is owed is dictated by the explicit or implied contract between employer and employee......and that could include vacation pay if such was a part of that contract.

[Greg H]

Pretty sure that forgiven debt is a deductible expense (it's income to the forgivee).  So maybe you could call this a forgiven debt and write it off.  Aggressive, but it's at least quasi-sensible.

Do NOT depend on that comment!

[MarshallGrad]

Sorry  not how I read it.

The Massachusetts Payment of Wages Act, M.G.L. c.149, §148, requires employers to pay a discharged employee his or her wages in full on the date of discharge. Employees who quit must be paid by the employer’s next regular payday.

Importantly, the final “wages” owed at departure include more than just the employee’s salary. Employers must also pay departing employees for all accrued and unused vacation time and for commissions which have been earned by the employee but not yet paid.

That last sentence is not a part of MA code.

M.G.L. c.149, §148: The word “wages” shall include any holiday or vacation payments due an employee under an oral or written agreement.

It is the contract that makes it a part of what is due. If there is no contract (policy) that vacation time accrues then there is no requirement to pay. If the contract states you use it or lose it, then the contract negates any requirement for payment of vacation in MA and WV.

Vacation is not explicitly earned income to the state of MA or to WV. It only is considered such if the contract between employer and employee exists, usually by way of policy, that makes it so. I think we are more in agreement than not. An employer MUST pay an employee on departure all wages and obligations due to them, as has been agreed between the parties in the contract entered into upon hire (policies and agreements).

[Always THE HERD]

Many of you are commenting and I very much appreciate that......however please comment on my question.....it is quite different than many of the responses.

[herdgadfly]

I think it would feel like a big loss to anyone. Chapter 11 is corporate welfare, funded by those that are getting ripped off.

Not just corporate welfare, bankruptcy is stealing no matter who files and creditors pay the cost of government largess.

Many of you are commenting and I very much appreciate that......however please comment on my question.....it is quite different than many of the responses.

Your question has already been answered . . . losing the rights to payments in lieu of vacation is not deductible.  You were paid for all hours worked, so you really lost nothing but time off.