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Currently we allow employees to cash out vacation. The IRS requires us to tax this vacation, specifically upon accrual. We currently ONLY tax the vacation when the employee cashes out or used. This has created several issues that we need addressed.
How can we reconcile all current vacation buckets that were not previously taxed correctly?
We envision two vacation buckets or something along those lines?
Bucket A contains untaxed vacation hours for an employee. This bucket will used first in order to eventually get all employees on the correct bucket.
Bucket B is from a point in time forward where we tax the vacation as it is accrued and we will use this bucket going forward once they have used all of Bucket A.
How do we track and tax employees accordingly going forward?
Need to ensure that employees are ONLY taxed when they accrue and not when they use their vacation also.
Bucket B may be the solution pending this is an option.
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