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Salary Continuation after retirement

We have an executive that is retiring - his exit agreement allows for salary continuation into next year. The agreement states we will withhold taxes from the continuation payments - HR is saying we cannot pay him through payroll (W2) as it will screw up his retirement benefits - 401K etc - and we have to pay him through AP as 1099.
Can you verify this is correct for this situation - and if we pay through AP - do we withhold at the same rate as when he was an employee?
Thank you.

Comments

  • rrupertrrupert ✭✭✭

    1099 will not withhold correctly for FICA etc

    HR is wrong on this one...I would press back on how this will "screw up" his retirement benefits. However it might mess up his SS benefits (not my wheelhouse, but is there still a max you can earn that then limits SS benefits)?

    Your payroll/HR system should be able to have a status of Retired while still paying wages. Ask them to show you in the plan document for the 401k where this is not available. Yes, he might get match, PS, etc but these would be considered wages -- possibly severance though that may be excluded.

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