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Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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We terminated an employee Aug 31 2009. They would like to

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We terminated an employee Aug 31 2009. They would like to deferred their severance until 2010. Can we do this and what are the tax implecations - should we 1099 him?
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.
Hello AndySue,

The only regulation that the IRS has concerning severance pay is that it is taxable to the employee in the year that it is received. There is no restriction as to which year the severance must be paid.

So you can defer the severance pay until 2010, and you would then report that severance pay in 2010 by issuing a W-2 form. A 1099 form is only used for independent contractors, and this employee's classification as a worker would not change simply due to the fact that he was receiving severance pay. The company would still withhold all the regular federal and state income taxes as well as SS and Medicare taxes from this pay.

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Thank you Andy.

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