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This week's paycheck - does it all go towards 2010?
Old 01-03-2010, 09:21 AM   #1
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This week's paycheck - does it all go towards 2010?

This week's paycheck will be for 1 week that I worked in 2009 and 1 week that I worked in 2010. I'm not sure, but I dont' think the paycheck will get prorated between 2009 and 2010. Everything in the paycheck (taxes, 401k, etc) will count towards 2010. I forget the accounting name for this but it takes into account the date that you get paid, not the dates that you work.

Are my assumptions correct that most businesses do this?

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Old 01-03-2010, 09:33 AM   #2
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It's called cash based accounting. It's commonly used in payroll. It means that you won't be paying taxes on the money you earned in the last week of 2009 until 2010. It's explained here:
Cash Basis

The other method is accrual accounting:
Accrual Accounting

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Old 01-03-2010, 10:02 AM   #3
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Thanks Meadbh. That's the exact info I was looking for.
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Old 01-03-2010, 10:28 AM   #4
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It is also the date of the paycheck which is important.

When I was working, we had an odd thing happen back in 1986/87. We were paid on alternating Thursdays and 1/1/87 fell on a Thursday, a paycheck date. Of course, the office was closed that day and the next day (Friday), and payroll issued our paychecks (no direct deposit yet) on 12/31/86.

However, the paychecks were dated 1/1/87 because the big tax reform act passed into law in 1986 lowered income tax rates and the execs in my company would benefit by having their 1986 bonuses count as 1987 income and subject to the lower rates. So, we were issued paychecks on 12/31/86 but post-dated by one day, preventing us from cashing them that day. [Because we were all off from work on Friday, 1/2/87, we could go to the bank then.] We were given warning about this (without the underlying reason, of course) a few weeks in advance so we would not get blindsided at paycheck time.
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