Do employees pay taxes on VSIP?
Yes. Voluntary separation incentive payments are considered supplemental wages and are treated similarly to cash awards, bonuses, and allowances withholding purposes. Agencies automatically withhold the following taxes from supplemental payments Federal Income Tax: Most agencies withhold a flat 28% of the buyout Payment for Federal income tax. In some cases, this may be higher than an employees normal withholding rate. State Income Tax (when applicable): Agencies make deductions based on a specified rate for supplemental payments or the applicable standard rate. Medicare (CSRS Employees): Medicare tax of 1.45% FERS & CSRS Offset Employees: Old age Survivor Disability Insurance (OASDI) 6.2% subject to annual tax limitations. Medicare tax of 1.45%.
