VAcation Pay JE Reminders
- Tim Kimble
- Jul 14
- 1 min read
Federal law does not require employers to offer vacations—paid or unpaid. It is a matter of company policy and possibly state law. If vacation is offered, paid or unpaid, it should be in writing (e.g., in the employee handbook) so both employer and employees know the rules.
• Apply all withholding taxes to vacation pay. For accrued vacation paid in lieu of time off, or included in final wages, you have options:
• For combined supplemental and regular wages not separately specified, withhold FIT on the total payment.
• For supplemental and regular wages paid separately—or in one paycheck but separately specified—withhold normal FIT from regular wages. Then, either:
withhold supplemental pay at 22%; or
withhold as if supplemental pay + regular wages for the payroll period is a single payment. To compute: FITW – FIT already withheld on regular pay = remaining FITW.
Note: If supplemental wages for the year exceed $1 million, withhold FIT at 37%. See IRS Pub. 15A.
Vacation pay JEs
Here are the JEs for employees who accrue, then receive, paid vacation:
Accrued Vacation Expense xxx
Vacation Payable xxx
To accrue vacation pay for the period
Record distribution of vacation pay as follows:
Vacation Payable xxx
Cash xxx
To distribute vacation pay
From AIPB Bookkeeping Tips, Volume 20: Issue 14
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