What are the implications of distributing a faculty annual salary over 9 or 12 months?

There may be some confusion here about the difference between 9 and 12 month appointments vs. arranging to have the salary for a 9 month appointment paid out over 12 months.

In the U.S., the typical faculty appointment is a 9 month appointment. Under this arrangement, a faculty member is required to be present on campus and teaching (and doing research and service) from September through May. They typically do not have formal vacation or sick leave but in practice can stay home (and cancel classes) if sick. They can also go on personal travel when classes are not in session. Faculty don't have to formally request time off as long as they attend to their responsibilities.

In this system faculty do not have to work over the summers, although many faculty do teach summer school or work on research grants and earn additional salary over the summer. Faculty will also often work on unfunded research projects over the summer.

Many faculty with 9 month appointments choose to have their annual salary paid out over 12 months. This doesn't create any obligation to work over the summer and has no significant tax consequences, but it is more convenient for household budgeting since summer salary can be quite variable and unpredictable from year to year.

For example, I just learned today that I will be able to earn a month of summer salary teaching a course that starts on June 8. I'm still waiting to hear if some research funding for this summer will come through. I've designed my personal budget so that I'm not dependent on summer salary, so I have my 9 month salary paid out over 12 months.

12 month appointments are quite common for academic administrators and some full time researchers. These typically do accrue sick leave and paid vacation, which has some advantages but also has some disadvantages such as having to explicitly request time off.

In the US, there are no tax implications behind distributing a 9-month salary over 12 months. If you have a 9 month appointment, you can work other jobs those 3 months, or get summer salary from a granting agency. However, if you have a 12 month appointment, then your university will probably not allow you to take a second job (though you may be able to arrange to buy some of your "time" to work on a grant). Faculty usually do not get "vacation" per se, they just go on vacation when they feel they have the free time (during one of their 3 free months, technically). However, in strongly unionized arrangements, vacation and sick leave may be more relevant. The advantage of 12 month distribution is that you get a regular amount of money flowing in to your bank account and you don't have to be careful to leave enough in savings to survive the summer.

[EDIT] The comments point out the possibility of micro-(dis)advantages to the employee in spreading salary over 12 months. I suggest that we need a full analysis of all of these effects. For example, employees usually make some contribution to the insurance scheme, which is usually divided evenly over 12 checks. If you aren't paid over your off 3 months, you would have to have set aside money to cover insurance during that time. This could get bureaucratically complicated, w.r.t. factoring in the employer contribution, and might necessitate increasing the employer contribution during salaried months to balance the lack of employer contributions during non-salary months. There would also be administrative costs to the university involved in processing monthly insurance contributions from employees (assuming that employees don't just end up on their own insurance-wise during their off months). Given the various unknowns, I'd want to see a detailed economic analysis of the effect of 9-month and 12-month payouts for 9-month appointments, before concluding that one has a monetary advantage over the other.

I use the 9 to 12 month salary distribution as I do not work full time during summer anymore. With current saving interest rates at 1% (e.g., capitalone savings account), for every $1000 take-home monthly salary, they may set aside $250 out of the paycheck every month to be paid during summer.

The interest you are giving away would be about $12 (Wrong calculations are made by other respondents as they use the time as 9 months on the whole amount they set aside for the whole summer). So if your 9-month take home salary is $45,000, you are just giving away $72 of your money. Now that is a dinner out for a couple and a kid nowadays, but I end up saving more as my budget gets reset to a lower amount for the rest of the year.

There is no substantial tax implication for me, as taxes are taken on the gross income and are distributed with no deductions in the summer.