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Is taxable income for a given year computed by the days where the income was actually earned or the pay period in which the pay is issued?

For example, suppose the pay period for an employee spans across years (e.g. Dec 28, 2015 - Jan 8, 2016). How would the taxable income be computed?

Is it allocated roughly 40% to 2015 and 60% to 2016 or is it allocated entirely to 2016 when the pay is actually issued?

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  • Which country are you asking about?
    – Ben Miller
    Commented Aug 29, 2015 at 18:12
  • United States of America
    – arcyqwerty
    Commented Aug 29, 2015 at 18:22

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The pay date determines the tax year. That is the date they give you the check, or the date it is direct deposited.

Knowing how many pay checks you will get this year will be important when determining how much from each paycheck to have withheld for a 401k, an FSA, or an HSA.

as was pointed out by dave_thompson_085 in the comments:

Publication 17 (2014), Your Federal Income Tax

Constructive receipt. Generally, you constructively receive income when it is credited to your account or set apart in any way that makes it available to you. You do not need to have physical possession of it. For example, interest credited to your bank account on December 31, 2014, is taxable income to you in 2014 if you could have withdrawn it in 2014 (even if the amount is not entered in your records or withdrawn until 2015).

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    As an edge case, if they make the check "available" by Dec. 31 but you choose not to pick it up, it counts in the earlier year. irs.gov/publications/p17/ch01.html#en_US_2014_publink1000170550
    – dave_thompson_085
    Commented Aug 30, 2015 at 7:35
  • There are lots of twists to the constructive receipt notion when lottery winnings are involved because the winnings are not available until after the winning ticket has been submitted to the lottery authorities and has been verified as legitimate etc. So what happens if the winner of a December drawing does not submit the ticket until after the New Year? (Usually, winning tickets must be submitted within N weeks after the drawing where N = 1, 2, 3, or even 4).
    – Dilip Sarwate
    Commented Aug 30, 2015 at 13:19
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    +1 One minor comment re Federal Income Tax. The IRS does allow individuals to maintain their accounts on an accrual basis (as many businesses do) rather than a cash basis (almost universally the case for individuals), and in this rare case, the answer would be different.
    – Dilip Sarwate
    Commented Aug 30, 2015 at 13:23
  • Not disagreeing with any of the previous, but I'd just add: In general, go by the amount your employer puts on your W-2, unless you have reason to believe there's some active fraud going on. The algorithm that the IRS uses to decide who to audit is secret, but I'd guess that reporting income different from what appears on your W-2 increases your chance of an audit significantly. And odds are that the company produces W-2s using software created by people who have studied tax law much more carefully than you or me.
    – Jay
    Commented Aug 31, 2015 at 14:24

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