(Revised 04/01/14 ML 3400)
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Payments, such as sick leave, disability or vacation pay from an employer that are paid from employer funds are earned income if the individual is still considered an employee.
Example:
An employed individual is receiving a check from the employer while on sick leave. Because the individual's employment has not been terminated the payment is counted as earned income.
Payments, such as sick leave, disability, vacation or severance pay from an employer that are paid from employer funds are unearned income if the individual is no longer an employee. The gross amount of the payment is counted as unearned income.
Payments from an outside source such as insurance companies are unearned income.
Example:
An individual is receiving disability payments from a group insurance policy that was purchased through the employer. The checks were delivered to the individual by the company which acted as addressee. Since the payments came from an outside source (the insurance company) instead of company funds they are considered unearned income.
If a final paycheck does not identify any vacation/sick leave pay as being included in the final check, the check is counted as earned income. If the final check identifies any portion of the check for vacation/sick leave pay, that portion must be counted as unearned income.
