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Department of the Treasury Internal Revenue Service Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. What is Back Pay? . . . . . . . . . . . . . . . . . . . . . . . Back Pay Under a Statute . . . . . . . . . . . . . . . . . Nonstatutory Back Pay . . . . . . . . . . . . . . . . . . . . Reporting Back Pay . . . . . . . . . . . . . . . . . . . . . . Format for Report to the SSA . . . . . . . . . . . . . . . Questions . . . . . . . . . . . . . . . . . . . . . . .
  Contents Department of the Treasury Internal Revenue ServiceIntroduction .............................. 11. What is Back Pay? ....................... 1 Back Pay Under a Statute................. 2 Publication 957 (Rev. June 2005)Nonstatutory Back Pay.................... 2 Cat.No.20985Y Reporting Back Pay...................... 2 Format for Report to the SSA............... 4 Questions.............................. 4 Reporting 2. Special Wage Payments ................... 5 Reporting Special Wage Payments........... 5 Back Pay and Reporting Nonstatutory (Nonqualified) StockOptions as Special Wage Payments....... 8 Special Wage Nonqualified Deferred Compensationand Section 457 Plans................. 8 Payments to Reporting Amounts Deferred toNonqualified and Section 457 Plans....... 8 Reporting Payments From Nonqualified the Social and Nongovernmental Section 457Plans.............................. 9 Reporting Payments and Deferrals in the Security Same Year.......................... 9 Administration Introduction The Social Security Administration (SSA) has special rulesfor back pay awarded by a court or government agencyunder a statute (a law) to enforce a worker’s protection law.The SSA also has rules for reporting special wage pay-ments made to employees after they retire. These rulesenable the SSA to correctly compute an employee’s bene-fits under the social security earnings test. These rules arefor social security coverage and benefit purposes only.This publication, written primarily for employers, discusseswhat are back pay under a statute and special wagepayments. It also explains how to report these payments tothe SSA. For more information, or to get a copy of FormSSA-131, Employer Report of Special Wage Payments,visit SSA’s website at:  . 1. What is Back Pay? Back pay is pay received in a tax year(s) for actual ordeemed employment in an earlier tax year(s). For socialsecurity coverage and benefit purposes, all back pay,whether or not under a statute, is wages if it is payment forcovered employment. Damages for personal injury, inter-est, penalties, and legal fees included with back pay Get forms and other information awards, are not wages. Report all back pay. However, the faster and easier by: tax year(s) for which back pay is credited as wages for Internet ã social security purposes is different if it is awarded under astatute.  settlement of a back pay case against her employer that Back Pay Under a Statute covered the periods January 1998 through December2002. Her employer properly reflected social securityBack pay awarded under a statute is a payment by anwages of $87,000 and Medicare wages of $150,000 on heremployer pursuant to an award, determination or agree-2003 Form W-2.ment approved or sanctioned by a court or governmentagency responsible for enforcing a federal or state statuteHowever, if an employer did not include back pay wagesthat protects an employee’s right to employment or wages.on a previously filed form W-2, magnetic media, or elec-Examples of pertinent statutes include:tronically filed wage report, the employer should prepare awage correction report, Form W-2c, Corrected Wage and ã Age Discrimination in Employment Act,Tax Statement, or electronically filed report, to add the ã Americans with Disabilities Act,back pay award to the wages previously reported. ã Equal Pay Act, Example. If, in the above example, Terry Morris’ em- ã Fair Labor Standards Act,ployer had prepared her 2003 Form W-2 reporting socialsecurity and Medicare wages of only $50,000 each, the ã National Labor Relations Act,employer would have to correct that report. A Form W-2c ã State minimum wage laws, andcorrecting the 2003 Form W-2 would show previouslyreported social security and Medicare wages of $50,000 ã State statutes that protect rights to employment andand the correct amount of $87,000 for social security andwages.$150,000 for Medicare.Payments based on laws that have a similar effect toThe Internal Revenue Service (IRS) and the SSA con-those listed above also may qualify as payments madesider back pay awards to be wages. However, for incomeunder a purposes, the IRS treats all back pay as wages in theyear paid. Back pay awards, under some of the statutes  If a back pay award is not made under a statute, the listed above, may be compensation for personal  SSA credits back pay as wages in the year paid. However, injury and not pay for employment. Such awards  CAUTION ! when awarded, the SSA credits back pay awarded under a are not wages for social security coverage purposes. statute to the year(s) it should have been paid.If a court-approved or sanctioned settlement agreementstates that the agreement is not an admission of discrimi- SSA treatment of back pay under a statute. Under thenation, liability, or act of wrongdoing, the statement doeslaw, the SSA credits back pay awarded under a statute tonot change the nature of a back pay award. The paymentsan individual’s earnings record in the period(s) the wagesmade in such a settlement may still be back pay and wagesshould or would have been paid. This is important becauseunder the rules discussed here.wages not credited to the proper year may result in lowersocial security benefits or failure to meet the requirements Nonstatutory Back Pay for benefits.However, back pay under statute payments will remainA payment for back wages negotiated between an em-posted to the employee’s social security earnings record inployer and employee without an award, determination orthe year reported on Form W-2 (or Form W-2c) unless thesanction by a court or government agency is back pay.employer or employee notifies the SSA (in a separate,However, it is not made under a statute. Delayed wagespecial report) of the back pay under a statute payment.payments and retroactive pay increases resulting fromThen, the SSA can allocate the statutory back pay to theunion negotiation or payments under local ordinances orappropriate periods.regulations are back pay and are wages. However, theyare not payments made under a statute.The law does not require that employers notifyIf you are uncertain whether the back pay award wasthe SSA of the different period(s) involved in aunder a qualified statute, you may need to contact yourback pay under statute case. If employers dopersonnel department or legal counsel or the attorney whonotify the SSA of this payment, they should prepare afiled the suit.special report (with the information noted below) and sendit to: Reporting Back Pay Social Security AdministrationOffice of Central OperationsEmployers should use Form W-2, Wage and Tax State-Metro Westment, or electronic wage reports to report back pay asAttn: Back Pay (DERO) Analyst Staffwages in the year they actually pay the employee. Begin-300 North Greene Streetning in calendar year 2006, SSA will no longer acceptBaltimore, Maryland 21202reports on tapes and cartridges and will not accept diskettereports beginning in calendar year 2007.Be sure to send this special report to the above addressbecause the SSA handles it separately from other re- Example. In 2003, Terry Morris earned wages ofports.$50,000. In the same year, she received $100,000 inPage 2  Table 1. Format for Report (Under Covering Letter) to Request SSA to Allocate Back Pay Under Statute Wages Employer’s EIN: xx-xxxxxxx Tax Year in Which Award Payment Was Paid: 2003  (1)(2) 1 (3) 2,3 (4) 3 SSN andAwardOther Soc. Sec./Med. WagesAllocationEmployeeAmount andPaid In Award YearNamePeriod(s)Soc. Sec.Med./MQGEYearSoc. Sec.Med./MQGE xxx-xx-xxxx$100,000$40,000$40,0002000$20,000$20,000HELEN T.1/2000- 12/200125,00025,000SMITH2003200227,00027,000200328,00028,000xxx-xx-xxxx30,000-0--0-19896,000SAM W.7/89-12/91199012,000EVANS199112,000xxx-xx-xxxx15,000-0--0-9/803,500ROLAND S.7/80-12/8112/803,500ADAMS19818,000 1 Exclude amounts specifically designated as damages, penalties, etc. 2 Exclude the amount of back pay, if any, included in that amount. 3 For periods before January 1, 1978, (and for state and local government (Section 218) employers before January 1, 1981), showthe wage amounts by calendar quarters. The social security and/or Medicare Qualified Government Employment (MQGE) wages(where applicable) must be shown separately FOR ALL YEARS. (Wages subject ONLY to MQGE would be shown in theMedicare/MQGE column; no wages would be shown in the Soc. Sec. column.) For tax years 1991 and later, the social securityand Medicare wages must be listed separately. Explanation of examples. Helen T. Smith   –The back pay award, excluding interest, was $100,000 for the periods 1/2000-12/2003. In 2003, thisemployee was also paid $40,000 in other wages. (Her Form W-2 for 2003 reported $87,000 for social security and$140,000 for Medicare. The SSA allocation will result in posted wages of $68,000 for social security and $68,000 forMedicare for 2003.) Sam W. Evans   –The back pay award was $30,000 for the periods 7/89-12/91. This employee was hired in 1989 andwas subject to MQGE only. He was no longer employed by this governmental employer in 2003. (His Form W-2 for2003 reported $30,000 for social security and $30,000 for Medicare. After the SSA allocation, he will not have anyposted wages for 2003.) Roland S. Adams   –The back pay award was $15,000 for the periods 7/80-12/81. He was no longer employed by thisstate and local government (Section 218) employer in 2003. (His Form W-2 for 2003 reported $15,000 for socialsecurity and $15,000 for Medicare; after the SSA allocation, he will not have any posted wages for 2003.) If you paid the back pay award in the same tax  Information the SSA needs to properly credit back pay year to which it applies, report the wages on that  under a statute (special report). You should send the year’s Form W-2. No further action is necessary. special report to the SSA when or after you submit the TIP Form W-2 (on paper or electronically) to the SSA for theyear you pay the statutory back pay to the employee. Example. In 2003, Judy Wilson received a salary ofThere is no statute of limitations on the filing of the special$30,000 and a back pay under statute award of $2,000 forreport to enable the SSA to allocate the wages. The SSAthe period January through June 2003. Her employer prop-needs the following information:erly reported wages of $32,000 for social security andMedicare on her 2003 Form W-2. No further action isnecessary.Page 3  1)The employer’s name, address, and employerIn a cover letter, include the following information:identification number (EIN).2)A signed statement citing the federal or state statute1)The name and address of the employer,under which the payment was made. (If the statute is2)The statute under which you paid the back pay,not identified, the SSA will assume the payment was3)The name and telephone number of the employernot under a statute and will not allocate to earliercontact, andperiod(s).)4)The signature of the reporting official.3)The name and telephone number of a person tocontact. (The SSA may have additional questions Under certain circumstances, back pay may be a  concerning the back pay case or the individual special wage payment and excluded from wages  employee’s information.) counted under the social security earnings test. If  TIP 4)A list of employees receiving the payment and the you pay back pay to an employee age 61 or older, report it  following information for each employee: to the SSA in accordance with this section. Read  Speciala)The tax year you paid and reported the back pay.Wage Payments on page 5 for additional reporting instruc-  b)The employee’s social security number (SSN). tions. c)The employee’s name (as shown on his or hersocial security card).d)The amount of the back pay award excluding any Questions amounts specifically designated otherwise, forIf you have questions concerning back pay under a statute,example, damages for personal injury, interest,penalties, and legal your local social security office.e)The period(s) the back pay award covers Exception. If you are a state or local government em-(beginning and ending dates—month and year).ployer who was covered by an agreement under Sectionf)The other wages paid subject to social security218 of the Social Security Act before January 1, 1987, andand/or Medicare taxes and reported in the sameyou paid a back pay award before January 1, 1987, whichyear as the back pay award (if none, show zero).*you did not report to the SSA, contact your state SocialDo not include the back pay award shown in thatSecurity Administrator’s office.wage report. If you srcinally submitted the reportunder an establishment number, show thatIf the state Social Security Administrator’s officenumber and the amount of money that is to remainneeds more information they can contact the SSAunder that establishment the following address:g)The amount to allocate to each reporting period.*This includes any amount you want allocated (ifSocial Security Administrationapplicable) to the tax year of the award payment.Office of Income Security ProgramsIf you do not give the SSA specific amounts toOffice of Earnings & Information Exchangeallocate, the SSA does the allocation by dividing6401 Security Boulevard RRCC #1910the back pay award by the number of months orBaltimore, MD 21235years covered by the award. *Note. For periods before January 1, 1978 (before Jan-uary 1, 1981, for state and local government employerscovered by a section 218 agreement), show the wageamounts for each calendar quarter ending March 31, June30, September 30 and December 31. For all tax years,show and identify the social security and/or MedicareQualified Government Employment (MQGE) wages(where applicable) separately. MQGE is applicable to fed-eral employees beginning in 1983, and for certain stateand local government employees beginning in 1986. Fortax years 1991 and later, list the social security and Medi-care wages separately. If you srcinally reported theindividual’s wages under an establishment or payroll re-cord unit number, show the amount of wages to remain inthe award year for that number and furnish that number tothe SSA along with the EIN. Format for Report to the SSA Use the format shown in Table 1 on page 3 to send theSSA the information needed to properly credit back payunder a statute.Page 4
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