Is it illegal for a school district to delay severance payment for tax purposes?

A court will not enforce a contract between two parties (the teacher and the school district) that violates a law. If the US Tax Code requires the school district to report income (the severance payment) in the year in which the teacher becomes entitled to receive it (the year of the agreement), then a court would not enforce an agreement by the school administration to report it in the subsequent year.

Whether or not deferring compensation for a year is permissible is a matter of tax law. I suggest that you consult with a qualified tax attorney or CPA to find out if the clause in the severance agreement is permissible. If so, have the CPA or tax attorney explain that to the school district. If not, then you are best off getting the tax treatment right.

posted by Neil Klingshirn  |  Feb 5, 2010 5:00 PM [EST]