# Cashing out Vacation Pay



## petulantfem

I could use some advice on something that is over my head.

We have a $560 shortfall this month for our expenses, and H suggested that he cash out his vacation pay. I just checked with his union and he has $1,379 available in vacation pay.

If he were to cash it (or a portion of it) out on his next cheque, would that kill him in taxes/deductions? I am worried about it, but he says that it was already taxed, so it won't be taxed again if he cashes it out.

Does anyone know how that works? I could call the union back, but they are so hard to get through to.


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## MoneyGal

Hey, how's it going?

Unlikely he's already been taxed on his vacation pay. Usually vacation pay and bonuses are taxed at a higher rate than your "normal" pay, although if the rate is too high/too much tax is withheld, the overage is refunded in the next year's tax return.


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## the-royal-mail

Seems to me that is a lot of fuss for a shortfall of a mere $560. A proper basic float and emergency fund are meant to prevent these sorts of situations. Failing that, this amount is so small, I would simply put it on the credit card or LOC and carry on in life. Besides, it seems to me giving up vacation time off is too high a price to pay for the convenience of ignoring sound financial management procedures.


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## petulantfem

Hi MoneyGal - it's definitely going!

Okay, I will call the office back to clarify. royal-mail, we don't have an emergency float right now. It's a work in progress. And I really don't want to go back to the credit cards on this. If he cashes this vacation pay out, he will accumulate more fairly quickly - this total is just from the past 2.5 months. He also has some banked hours that he can use if he wants to take some days off between now and, say, Christmas.

I'm just concerned that if it is going to basically disappear into deductions anyway, we might as well not bother. He generally makes in the range of $1,000 net on each weekly cheque. So I will find out.


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## Barwelle

That vacation pay will be subject to tax and deductions regardless of whether you withdraw it now, or use it up for vacation time. 

The only difference is that it will be taxed at a somewhat higher rate because it is adding to his annual wages by taking it out now, instead of filling in a gap where he wasn't working because he took vacation time off.

Unless he takes time off with no pay, later in the year. But you say he has banked hours so it depends how much vacation time he wants.

If he takes time off with no pay, he will pay less in taxes and deductions, but then he'll still end up with fewer after-tax dollars. But... then he'd still get vacay time.

If you want to know for sure, you could ask the union or employer how much you'd actually get by pulling out the $1,379. Or, ask them how much vacation pay you'd have to use up (before deductions and taxes) to have a net paycheque of $560, just enough to cover your shortfall.


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## Four Pillars

Hello indeed. You should update your thread http://canadianmoneyforum.com/showthread.php/7702-Digging-Out

Don't worry if it's not good news - we're not here to judge. :|


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## Eclectic12

The only vacation pay I received was as a student, when there were no vacation days. It was paid on each cheque (4% I believe) and taxed as part of each cheque.


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## Daniel A.

He will be taxed on the gross amount of the check but you likely will see the amount you need plus some.


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## jcgd

I have a similar setup. If I miss some days and top up to my typical gross my cheque comes out the same as I'm taxed on the usual amount. If I add vacation on top of my normal gross I get hit pretty hard. The way I'm taxed is they base my rate off what I would make in a year if I made that amount every week. So I try not to top off vacation over my usual gross pay or add vacation to a full (hours wise) cheque. Once I got paid out my entire banked amount when I only asked for a few hundred. This pretty much doubled my gross amount I got killed on taxes. My boss wasn't apologetic as I get the difference back at tax time - but, my vacation time was toast for the year as the cash was tied up till the following year.


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## michaelman501

the-royal-mail said:


> Seems to me that is a lot of fuss for a shortfall of a mere $560. A proper basic float and emergency fund are meant to prevent these sorts of situations. Failing that, this amount is so small, I would simply put it on the credit card or LOC and carry on in life. Besides, it seems to me giving up vacation time off is too high a price to pay for the convenience of ignoring sound financial management procedures.


Situations arise in life and sometimes people are unable to afford to have an "emergency fund" set aside for unexpected expenses. BTW do you contribute to these forums othern than for scrutinizing people for not having a "rainy day fund" or "emergency fund". These forums should be a place for people to learn and comments like that make people wanna run and join other forums.


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## crazyjackcsa




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## the-royal-mail

michaelman501, don't let the door hit you on the way out. If you don't like my posts then you don't have to read them. Considering your rude and targetted quote of part of my message, I certainly don't see you adding anything constructive other than to troll.

Everyone needs an emergency fund or a basic float. There is simply no excuse for a couple that brings in the kind of income being discussed here to not know how to properly manage their finances and be able to handle a one time dip of $500. This highlights the real lack of basic financial literacy in our country today. If the OP had of listened to my suggestions earlier on then they wouldn't be in this situation.


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## petulantfem

trm - I appreciate your input. The income we are discussing is relatively new to us as H began this job at the end of July and it is about twice what he was making previously all said and done. In August we had over $3,000 of unexpected expenses and had no emergency fund to draw from. I know that our progress in learning to manage our money better has been relatively slow. Hopefully it won't take us long to build an emergency fund up. I have been more focused on trying to eliminate our debt instead, and that might not be the most clever thing to do in this scenario. At any rate, the vacation pay is acting as our emergency fund this month.

H said that he was told that the cheque is for $1,379 - that is after deductions. It is being issued separately from his weekly paycheque and they said it would be in the mail in a couple of days. Does that sound right? Sometimes he doesn't ask the right questions or get all of the information and I wasn't there. I guess we will see for sure when the cheque arrives.

FP - I am scared to update my thread haha. H's hours dropped so much (which is why he ended up looking for this new job) that things were really bad for a while. Plus, I know that we made a bad financial choice recently and I am embarrassed to share.


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## balexis

petulantfem: Don't be embarrassed to share here. TRM's comments are very frequently the same and mostly do not show any kind of consideration for poster's life circumstances. Drastic quotes such as this one illustrate my point of view:



> There is simply no excuse [...] to not know how to properly manage their finances and be able to handle a one time dip of $500.


With regards to the vacation pay, even if you are hit by a high tax rate at the time of cashing in the money, everything will be evened out at tax time in a few months from now. As long as you get enough to handle your unexpected situation, I wouldn't worry too much about the gross vs net difference.

Some previously commented that they wouldn't get cash instead of vacation days; I believe that if you can keep your sanity (ie I would be able to do it for 2-3 years), it is a good way to get extra money coming in without asking for a raise.

Just my 0.02$.


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## OhGreatGuru

petulantfem said:


> ... H suggested that he cash out his vacation pay. I just checked with his union and he has $1,379 available in vacation pay.
> 
> ... he says that it was already taxed, so it won't be taxed again if he cashes it out.
> 
> ...I could call the union back, but they are so hard to get through to.


I am surprised it is his union, and not his employer's Bay & Benefits office, that is keeping track of his vacation pay. 
No, vacation pay is not tax-free.
He should probably be asking his P&B office these questions.

PS. Neither the union nor his employer should be giving you his pay information unless you have his Power of Attorney, or are applying for death benefits.


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## Sudstoy

One way that you can sort of defer that taxes on that is ask his employer to put it on a separate check then his regular. This used to help save on Income tax at my last company. The tax man will get his money, might as well set it up so he doesnt get it until your hopefully in a better financial situation.


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## petulantfem

Oh GreatGuru, he actually had to go to the Union office to sign a form to allow me to talk to them about his information.


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