TN 17 (12-23)

RS 01401.140 Allocating Back Pay

A. Background

There is no statutory authority for allocation of back pay under a statute. The authority is based on U.S. Supreme Court decision, Social Security Board v. Joseph Nierotko, 327 U.S. 358 (1946). The court held that back payments made to Mr. Nierotko by their employer constituted wages and should be allocated to the periods in which they should have been paid.

IRS does not allocate back pay because employer tax liability is based on when the back wages are actually paid.

REFERENCE: Social Security Ruling 83-7

B. Policy

Nonstatutory back pay must be credited as wages only in the period in which it is paid up to the maximum earnings limit. It is not allocated to other periods of time.

Back pay under a statute must be allocated to the period of time covered by the back pay award. Back pay can be allocated at any time without regard to the statute of limitations (see RS 02201.000 ff.). If an award includes a period after the date of payment, wages can be allocated to a future period as well as to the back period involved.

C. Procedure

Allocate statutory back pay to the period(s) for which the back pay was awarded.

1. When to Allocate

Allocate the back pay award if the additional wages for the periods involved are material to insured status or benefit amount, i.e., if the PIA is affected by $1.00 or more.

If not, credit the back pay award to the period it was actually paid.

2. How to Allocate

Use the Earnings Modernization Item Correction System (ICOR) to allocate back pay to the entire period covered by the award (see RS 01405.001 and MSOM EM 019.002). For periods prior to 1978:

  1. a. 

    Count the number of months in the period covered by the award. Any part of a month is counted as a full month.

  2. b. 

    Divide the amount of the award by the number of months involved.

  3. c. 

    Credit the monthly amount to each month.

For periods after 1977, allocate back pay to the year(s) covered by the back pay award.

3. Applying the Maximum Wage Base Limitation

  1. a. 

    Allocate the entire amount even if it exceeds the maximum wage base limitation for either social security or Medicare in the year in which back pay is actually paid; and then

  2. b. 

    Apply the maximum wage base limitation for both social security and Medicare.

NOTE: When the allocated amount exceeds the maximum wage limitation, use only the maximum in computations. However, the entire amount could affect deductions in cases where the claimant was on the rolls during the year to which back pay was allocated.

4. More Than One Individual Involved

Make a reasonable effort to identify any other individuals involved.

  1. a. 

    Contact the employer to identify other employees covered under the award.

  2. b. 

    If the employer refuses to identify the employees, document the file as to the efforts made and close the case.

NOTE: Group backpay situations are handled by the Office of Pre-Claims Requirements, see RM 02006.001C.

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RS 01401.140 - Allocating Back Pay - 12/27/2023
Batch run: 12/27/2023