teacher's golden handshake

[POCAHONTAS]

client, a retired teacher, received W-2, box 1 has $17560, box 5 has the amount $5560. box 14 has $12000, which he says is the golden handshake and that part should not be taxed, only $5560 should be taxable and not the whole $17560, in box 1. Have never come across this teacher's golden handshake before. Does anyone know about this, and how do I go bout preparing this tax return. I did some research and it seems that $17560 is taxable, am I correct??
thanks

[JohnH]

Maybe the $12K is excludable for state purposes but not for Federal. In NC, for example, up to $35K in severance payments is excludable, provided the payments meet certain guidelines. Sometimes someone will come in assuming it's also excludable for Fed purposes, but I have to explain that they are wrong.

[POCAHONTAS]

this is in the state of California, and box 16 on W-2 is also showing $17560

[FEDUKE404]

Probably taxable income

Sure sounds like federal and state taxable income to me, at least from the placement on the W2.

I have seen instances where a retiring worker gets funds for unused vacation leave, sick pay, and the like.

And JohnH, while I see your point, IIRC the NC special treatment is for "severance pay" as described below. I doubt if a retiring teacher would have a case.

You may deduct up to $35,000 of any severance wages you received as a result of your permanent involuntary termination from employment through no fault of your own. The severance wages deducted as a result of the same termination may not exceed $35,000 for all taxable years in which the wages were received. “Stay on pay” does not qualify for the deduction.
Severance wages do not include payments that represent compensation for past or future services.
Compensation for past or future services includes payment for accumulated sick leave, vacation time, other unused benefits, bonuses based on job performance, or payments in consideration of any agreement not to compete.

FE

[S T]

Having clients as Teachers

I have not ever seen on my Teacher's a notation for "goldenhandshake" that excludes from Federal or Calif Income Tax. Box 14 is only a notation, might have some special tax treatment, but none that I am aware of.

Is the W-2 from Cal PERS or Cal STRS? You might be able to either call them or go to their website.

I would say on the "surface" all taxable.

Sandy

[POCAHONTAS]

W-2 is from CALSTRS

[FEDUKE404]

Confused - need more morning coffee!

W-2 is from CALSTRS

Assuming "STRS" is "state teacher retirement system" why would they be issuing a Form W2, instead of a Form 1099-R ??

One other off-the-wall possibility: Did client have outstanding loan using retirement funds as collateral? Those can sometimes be "paid off" upon leaving employment and taxable income suddenly appears.

(My vote still goes with payment for unused vacation/sick pay et al...)

FE

[JohnH]

FE: You're right. I overlooked the "retired" part of the post. I was just throwing out ideas just in case there was something along the lines of the NC Severance Payments provision in the other state.

Turns out that this is a provision in CA that induces teachers to retire early, and it would be reported on a W-2. It dates back to 2003, although Ididn't find out when it was actually passed.
Here's a link to a pre-passage article about it:

http://www.cft.org/about/news/Rel_1207.pdf

There's nothing in that article about it receiving special income tax treatment.

[FEDUKE404]

Shakin' in CA

Turns out that this is a provision in CA that induces teachers to retire early, and it would be reported on a W-2. It dates back to 2003, although Ididn't find out when it was actually passed.
Here's a link to a pre-passage article about it:

http://www.cft.org/about/news/Rel_1207.pdf

There's nothing in that article about it receiving special income tax treatment.

Plain ole income, especially since you did the extra work to find out what it (probably) is.

I wonder if CA pays them in IOU's ??

FE

[taxmandan]

Could be several reasons for W-2

Assuming "STRS" is "state teacher retirement system" why would they be issuing a Form W2, instead of a Form 1099-R ??

One other off-the-wall possibility: Did client have outstanding loan using retirement funds as collateral? Those can sometimes be "paid off" upon leaving employment and taxable income suddenly appears.

(My vote still goes with payment for unused vacation/sick pay et al...)

FE

I have a client with state teachers retirement and she receives a W-2 each year for some life insurance benefits paid by the school district on her behalf. Part of her severance package upon retirement over and above PERS. She gets a 1099-R for her retirement.

[Snaggletooth]

Golden Handshake

Have never come across this teacher's golden handshake before.

Sounds like the Midas touch to me.

"Hey I've got a deal-and-a-half for you."
"Whazzat?"
"I'm going to take out social security on only part of your salary."
"Whyzzat?"
"Don't want either of us to have payroll taxes on part of it."
"WhaddI haveto do?"
"Just agree to it."
"OK, I agree."
"Let's shake on that agreement."
[parties shake hands, and go their separate ways]

[POCAHONTAS]

thanks Snaggletooth and everyone else