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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I am 59 years old and on May 31, 2010 I retired from a 501c3

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I am 59 years old and on May 31, 2010 I retired from a 501c3 organization. The organization agreed to pay me one year’s salary when I left the organization. This amount has been paid to other executives leaving the organization, some of whom left before 65 years of age and some of whom left after 65 years of age. The organization has drafted a letter of agreement to cover this payment. In the letter of agreement, they state that the payment will be taxable when the agreement is signed although payment will not be made until January 4, 2011. The payment is not related to any agreement other than the drafted letter – no retirement plan, no compensation plan, no deferred compensation plan.

When does this payment become taxable? Is there any way my tax liability can be deferred?
Submitted: 6 years ago.
Category: Tax
Expert:  Merlo replied 6 years ago.

Hello JA Customer,


It is somewhat confusing as to why the agreement would state that this compensation becomes taxable when the agreement is signed, as that is not what dictates taxable compensation. Compensation that you receive is always taxable in the year that it is paid to you. If the organization does not actually cut you a check until January 4, 2011, then the money would be taxable in 2011 ... and not in 2010 when you presumably sign this agreement. You are not liable for paying taxes on income until the year you actually receive that income. So first of all, I would suggest that you clarify with the organization just exactly why that statement is in that agreement, and ask them just how they think that would work?


When the organization makes this payment to you, they will issue you a W-2 form to report the payment made. The W-2 form cannot be issued except in the year the payment is actually made to you. So they could not issue you a W-2 form in 2010 if they do not make this payment until 2011. They really need to clarify that statement, as it is not correct.


Secondly, there is no way to defer your tax liability or to even spread it out over a number of years. The only thing you could request is that the organization pay you part of the payment in 2010 and part of it in 2011. That would at least spread out your tax liability over a two year period and perhaps help to keep you in a lower tax bracket each of those years, rather than having the full amount paid to you all in one year.


If this was helpful please press the Accept button.


Thank you JA Customer



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