Title
Approve amending the County's Internal Revenue Code Section 125 Plan to add the Annual Leave/ Vacation/PTO Buy Back Plan as described as Appendix C of the Plan effective August 25, 2015.
Report
RECOMMENDATION:
It is recommended that the Board of Supervisors:
Approve amending the County's Internal Revenue Code Section 125 Plan to add the Annual Leave/ Vacation/PTO Buy Back Plan as described as Appendix C of the Plan effective August 25, 2015.
SUMMARY/DISCUSSION:
It is proposed to amend the County's Section 125 Cafeteria Plan to include "vacation buy back" provisions as part of open enrollment in September of 2015. This amendment would require that employees make "irrevocable elections" concerning the amount of accrued leave they want the County to "buy back," starting on January 1, 2016. The reason for this amendment is to protect an employee's accrued leave from being taxed as being "constructively received." A copy of the proposed amendment, identified as "Appendix C - Annual Leave/ Vacation/PTO Buy Back Plan," is attached as Attachment A.
Tax law has a concept or doctrine known as "constructive receipt." Under this theory, income is considered "received" by an individual under certain circumstances, whether or not the individual actually "took" or used the income. A classic example is that of interest earned on savings accounts: the interest allocated is considered "received" by the taxpayer, even if that money continues to sit in the account and is not withdrawn and used.
The value of time available as "vacation buy back" for employees is subject to the "constructive receipt" doctrine, unless certain limitations are placed on the ability of the employee to use it. The tax consequences of an IRS determination of constructive receipt of this time would be adverse to all individual employees with this benefit, causing the employee to pay more taxes (and requiring the County to withhold more).
In order to avoid this situation,...
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