Tax Deferred Contribution for Annual Leave Payout

Employees separating from service may elect to make a tax deferred contribution from their unused annual leave payout instead of receiving a lump sum payment. You may contribute up to 100% of the annual leave payout (minus Social Security and Medicare taxes), within the annual IRS limits on elective deferrals based on your age/service and the calendar year in which the contribution is to be made.

As a reminder:

  • The Internal Revenue Service limits on elective deferrals. See IRS annual limits.
  • The 401(k) and 403(b) share an annual limit.  The 457 has a separate annual limit.
  • There are catch-up provisions available in the 403(b) and 457 (if the employee meets specific qualifications) that may allow amounts in excess of the limits for the given year.

You may elect to contribute a flat dollar amount or the net annual leave pay after Social Security/Medicare taxes. If an employee wishes to contribute the net amount, he/she may indicate this on the form, and the contribution will be calculated by the Office of Benefits & Retirement in Knoxville. In the event the amount would be in excess of the IRS limits for that employee, the contribution amount will be reduced to be within the limits and any excess will be paid to the employee. If you wish to take advantage of the tax deferral opportunity, the 403(b) annual leave deferral agreement and the 401k /457 annual leave deferral agreement along with the annual leave contribution release form are to be used specifically for the deferral of unused annual leave.

Completed forms must be received by the Benefits office as soon as possible but NO later than the 10th of the month in which the employee is separating service.  If you should have any questions, please contact Debbie Jackson at (901)-448-8547.