ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, December 26, 1996 TAG: 9612260089
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: The New York Times
THE IRS SAID people faced with losing vacation days may be able to put the cash compensation into retirement deals.
Unthinkable as it may seem, each year many workers just don't get around to taking vacations, or they take less than they are entitled to.
The lucky ones are allowed by their employers to carry over the time to the next year or are paid for it in cash, perhaps even getting the choice. The unlucky ones simply forfeit their vacations.
But an obscure ruling last month by the Internal Revenue Service has drawn attention to an intriguing option for unused vacation time: adding its value to tax-deferred profit-sharing plans. The IRS ruling seems to allow such a transfer, even when an employee has already reached the $9,500 annual limit for tax-deferred contributions into 401(k) retirement plans.
``I think there's a whole series of possible ramifications,'' said Harry Conaway, the head of the legal group at the national office of the benefits consultant William M. Mercer Inc. in Washington. The IRS, he said, ``may be startled about how broadly this is applied.''
But most employees should not expect their companies to offer this benefit any time soon. Companies at which vacation is forfeited will most likely ignore the possibility. And there are enough caveats that tax experts say companies that otherwise might be interested will tend to steer clear of the benefit and its complications.
The ruling was a piece of technical advice to an IRS auditor who asked headquarters for help. It said essentially that an employer did not have to pay Social Security tax on money it paid into a worker's 401(k) plan in lieu of vacation because the employee in this case had no choice other than to lose the days.
Although the IRS said the ruling, which involved only one company, should not be read as a precedent, some tax experts said they saw considerable potential for reconfiguring benefit packages to capture the value of vacation time.
LENGTH: Short : 46 linesby CNB