Bonus Pay Bonus payments, such as
safety, incentive, fuel conservation, signing bonus, and suggestion awards,
constitute creditable compensation because the payments are made in
consideration of services.
Bonus pay which is conferred in non-monetary form is creditable as
compensation only if there is an agreement between the employer and employee in
advance as to the value of the non-monetary payment and that the award will be
paid other than in cash.
The Railroad Retirement Act (RRA) and the Railroad Retirement Tax Act (RRTA)
differ with respect to non-monetary payments. The RRA requires a prior agreement
between the employer and employee on the form and value of the non-cash payment,
while the RRTA does not require any agreement. Thus, a non-monetary payment
which was not agreed upon may be taxable but is not creditable. Also see stock
options below.
Retention Pay
Payments made to an employee as an incentive to remain with the employer for
a period of time are considered retention bonuses and constitute creditable
compensation. Although a retention bonus may be paid along with severance pay at
the time the employee terminates, the retention bonus is not severance pay and
should not be included on Form BA-9
, “Report
of Severance Pay and Separation Allowances Subject to Tier II Taxation”.
If both a retention bonus and a separation allowance are being paid upon the
employee’s resignation, it is preferable if the two payments are issued
separately. This will make clear to both the employee and the RRB, the amount of
separation allowance which is subject to Tier II tax. This will help to prevent
unnecessary inquiries to the employer for clarification.
Qualified Stock Option Plans
A stock option plan is considered a qualified plan if made under either an
Incentive Stock Option Plan or an Employee Stock Purchase Plan as defined by
sections 422 or 423, respectively, of the IRS Code of 1986 (26 U.S.C ss
422,423). Guidance on issues arising under the Internal Revenue Code (IRC) must
be obtained from the Internal Revenue Service.
Under previous law, any qualified stock option plan purchased by an employee
was not considered creditable or taxable compensation under the RRA, RUIA, and
RRTA. However, the difference between the option price and the fair market value
of the stock (commonly referred to as the "spread") at the time of exercise was
considered creditable and taxable compensation.
Effective with tax year 2002, the "spread" value of the shares at the time of
transfer is not considered taxable or creditable compensation. Thus the stock an
employee receives through a qualified Incentive Stock Option or Employee Stock
Purchase Plan will not result in additional compensation under the RRA in the
year the stock is received or in the year the stock is transferred or sold.
Non-Qualified Stock Option Plans
Non-qualified stock option plans are sometimes called a non-statutory stock
option plan. The grant of an option to purchase stock made under a non-qualified
purchase plan is creditable and taxable compensation to the extent that the
option has a readily ascertainable fair market value. The amount of compensation
is determined under the rules of section 83 of the Internal Revenue Code (26
U.S.C. 83). As a general matter, the amount of additional compensation is the
fair market value of the stock at the time of the stock transfer to the
employee, less any amount the employee pays for the stock.
Personal Days
Compensated personal leave days, including days taken pursuant to the Family
Leave Act, are considered pay for time lost and are creditable as service and
compensation. If an employee is paid for unused leave the payment yields
creditable compensation but not service month credit.
Holiday Pay
Holiday Pay or Birthday Bonus is creditable compensation. In addition,
service may be credited for the month of the holiday or birthday.
Productivity Fund Payments
Productivity fund payments are made under cost-containment plans where
distribution is made to employees for working in such a way as to reduce costs.
Generally bank trust fund departments administer these funds. Productivity fund
payments are creditable and taxable as Tier I, Tier II, and RUIA compensation,
but do not yield a service month credit. Although creditable as RUIA
compensation, based on coordination or prorated with the employer, the payments
do not usually yield additional RUIA compensation credit.
Profit Sharing/loss Sharing
Employees, who receive more or less than their regular earnings due to profit
or loss sharing plans, are credited with and taxed on the actual amount
received. Payments made under a profit sharing plan are creditable compensation.
Purchase of Employee Benefits
The payment to an employee for the termination or "purchase" of an employee
right or benefit, such as seniority rights, profit sharing rights, sick
benefits, etc., is creditable compensation.
Tips
Tip earnings of $20 or more per month are creditable as Tier I and Tier II
compensation and are to be included in the annual report of service and
compensation. Tips are not subject to RUIA contributions. Tip compensation is
subject to employee Medicare and Tier taxes but tax liability for tips does not
extend to employers. If the employer is reporting tip income to the IRS under
the Tip Rate Alternative Commitment program (TRACE) or the Tip Rate
Determination Agreement (TRDA), the total amount should be reported to the RRB
as creditable compensation.
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