Do I have to pay tax on accrued annual leave payments?

If you are a federal employee and receive a lump sum payment for accrued annual leave when you retire or resign, this amount will be included as taxable income on your Form W-2 and must be reported on your tax return.

If you resign from one agency and are re-employed by another agency, you may have to repay part of your lump sum accrued annual leave payment to the second agency. You can reduce gross wages on your tax return by the amount of accrued annual leave you repaid in the same tax year in which you receive it. You should attach to your tax return a copy of the receipt for the repaid accrued annual leave or a statement furnished by the agency to which repayment of the accrued annual leave is made to explain the difference between the wages on the IRS tax return and the wages on your Form W-2.

Related tax information about accrued annual leave
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