Table of Contents
Back pay is pay received in a tax year(s) for actual or deemed employment in an earlier tax year(s). For social security coverage and benefit purposes, all back pay, whether or not under a statute, is wages if it is payment for covered employment. Damages for personal injury, interest, penalties, and legal fees included with back pay awards, are not wages. Report all back pay. However, the tax year(s) for which back pay is credited as wages for social security purposes is different if it is awarded under a statute.
Back pay awarded under a statute is a payment by an employer pursuant to an award, determination or agreement approved or sanctioned by a court or government agency responsible for enforcing a federal or state statute that protects an employee's right to employment or wages.
Examples of pertinent statutes include:
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Age Discrimination in Employment Act,
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Americans with Disabilities Act,
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Equal Pay Act,
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Fair Labor Standards Act,
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National Labor Relations Act,
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State minimum wage laws, and
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State statutes that protect rights to employment and wages.
Payments based on laws that have a similar effect to those listed above also may qualify as payments made under a statute.
If a court-approved or sanctioned settlement agreement states that the agreement is not an admission of discrimination, liability, or act of wrongdoing, the statement does not change the nature of a back pay award. The payments made in such a settlement may still be back pay and wages under the rules discussed here.
A payment for back wages negotiated between an employer and employee without an award, determination or sanction by a court or government agency is back pay. However, it is not made under a statute. Delayed wage payments and retroactive pay increases resulting from union negotiation or payments under local ordinances or regulations are back pay and are wages. However, they are not payments made under a statute.
If you are uncertain whether the back pay award was under a qualified statute, you may need to contact your personnel department or legal counsel or the attorney who filed the suit.
Employers should use Form W-2, Wage and Tax Statement, or electronic wage reports to report back pay as wages in the year they actually pay the employee. Beginning in calendar year 2006, SSA will no longer accept reports on tapes and cartridges and will not accept diskette reports beginning in calendar year 2007.
Example.
In 2003, Terry Morris earned wages of $50,000. In the same year, she received $100,000 in settlement of a back pay case against her employer that covered the periods January 1998 through December 2002. Her employer properly reflected social security wages of $87,000 and Medicare wages of $150,000 on her 2003 Form W-2.
However, if an employer did not include back pay wages on a previously filed form W-2, magnetic media, or electronically filed wage report, the employer should prepare a wage correction report, Form W-2c, Corrected Wage and Tax Statement, or electronically filed report, to add the back pay award to the wages previously reported.
Example.
If, in the above example, Terry Morris' employer had prepared her 2003 Form W-2 reporting social security and Medicare wages of only $50,000 each, the employer would have to correct that report. A Form W-2c correcting the 2003 Form W-2 would show previously reported social security and Medicare wages of $50,000 and the correct amount of $87,000 for social security and $150,000 for Medicare.
The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. However, for income tax purposes, the IRS treats all back pay as wages in the year paid.
If a back pay award is not made under a statute, the SSA credits back pay as wages in the year paid. However, when awarded, the SSA credits back pay awarded under a statute to the year(s) it should have been paid.
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Social Security Administration
Office of Central Operations
Metro West
Attn: Back Pay (DERO) Analyst Staff
300 North Greene Street
Baltimore, Maryland 21202
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1) | The employer's name, address, and employer identification number (EIN). | ||
2) | A signed statement citing the federal or state statute under which the payment was made. (If the statute is not identified, the SSA will assume the payment was not under a statute and will not allocate to earlier period(s).) | ||
3) | The name and telephone number of a person to contact. (The SSA may have additional questions concerning the back pay case or the individual employee's information.) | ||
4) | A list of employees receiving the payment and the following information for each employee: | ||
a) | The tax year you paid and reported the back pay. | ||
b) | The employee's social security number (SSN). | ||
c) | The employee's name (as shown on his or her social security card). | ||
d) | The amount of the back pay award excluding any amounts specifically designated otherwise, for example, damages for personal injury, interest, penalties, and legal fees. | ||
e) | The period(s) the back pay award covers (beginning and ending dates—month and year). | ||
f) | The other wages paid subject to social security and/or Medicare taxes and reported in the same year as the back pay award (if none, show zero).* Do not include the back pay award shown in that wage report. If you originally submitted the report under an establishment number, show that number and the amount of money that is to remain under that establishment number. | ||
g) | The amount to allocate to each reporting period.* This includes any amount you want allocated (if applicable) to the tax year of the award payment. If you do not give the SSA specific amounts to allocate, the SSA does the allocation by dividing the back pay award by the number of months or years covered by the award. |
Use the format shown in Table 1 on page 3 to send the SSA the information needed to properly credit back pay under a statute.
In a cover letter, include the following information:
1) | The name and address of the employer, |
2) | The statute under which you paid the back pay, |
3) | The name and telephone number of the employer contact, and |
4) | The signature of the reporting official. |
If you have questions concerning back pay under a statute, contact your local social security office.
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)
SSN and Employee Name |
(2)
1
Award Amount and Period(s) |
(3)
2,3
Other Soc. Sec./Med. Wages Paid In Award Year |
(4)
3
Allocation |
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Soc. Sec. | Med./MQGE | Year | Soc. Sec. | Med./MQGE | ||
xxx-xx-xxxx
HELEN T. SMITH |
$100,000
1/2000- 12/2003 |
$40,000 | $40,000 |
2000
2001 2002 2003 |
$20,000
25,000 27,000 28,000 |
$20,000
25,000 27,000 28,000 |
xxx-xx-xxxx
SAM W. EVANS |
30,000
7/89-12/91 |
-0- | -0- |
1989
1990 1991 |
6,000
12,000 12,000 |
|
xxx-xx-xxxx
ROLAND S. ADAMS |
15,000
7/80-12/81 |
-0- | -0- |
9/80
12/80 1981 |
3,500
3,500 8,000 |
|
1Exclude amounts specifically designated as damages, penalties, etc.
2Exclude the amount of back pay, if any, included in that amount. 3For periods before January 1, 1978, (and for state and local government (Section 218) employers before January 1, 1981), show the 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 the Medicare/MQGE column; no wages would be shown in the Soc. Sec. column.) For tax years 1991 and later, the social security and Medicare wages must be listed separately. |
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Explanation of examples. | ||||||
Helen T. Smith–The back pay award, excluding interest, was $100,000 for the periods 1/2000-12/2003. In 2003, this employee 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 for Medicare 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 and was subject to MQGE only. He was no longer employed by this governmental employer in 2003. (His Form W-2 for 2003 reported $30,000 for social security and $30,000 for Medicare. After the SSA allocation, he will not have any posted 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 this state and local government (Section 218) employer in 2003. (His Form W-2 for 2003 reported $15,000 for social security and $15,000 for Medicare; after the SSA allocation, he will not have any posted wages for 2003.) |
Social Security Administration
Office of Income Security Programs
Office of Earnings & Information Exchange
6401 Security Boulevard RRCC #1910
Baltimore, MD 21235
A special wage payment is an amount paid by an employer to an employee (or former employee) for services performed in a prior year. Employers should report to the SSA special wage payments made to employees and former employees who are recipients of social security retirement benefits. Special wage payments made to a retired employee receiving social security or to an employee who continues to work while receiving social security benefits may reduce the benefits the individual receives if not reported to the SSA. Special wage payments may include (but are not limited to):
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Accumulated sick and vacation pay,
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Back pay,
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Bonuses,
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Deferred compensation,
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Payments because of retirement,
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Sales commissions,
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Severance pay, and
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Stock options.
Note.
Payments made after retirement that are part of the normal payroll cycle should not be routinely reported as special wage payments.
Employers must report special wage payments for income tax purposes and social security and Medicare taxes in the year received. Report income, social security, and/or Medicare taxes for special wage payments on Form W-2.
In addition, report to the SSA special wage payments made during the reporting year to retired employees and employees who continue to work while receiving social security benefits. Submit reports after the close of the tax year. To avoid delays in processing, submit reports in time to reach the SSA by April 1. Use one of the following reporting methods.
Publication 957Reporting Back Pay to the Social Security Administration
EMPLOYER INSTRUCTIONS FOR COMPLETING SPECIAL WAGE PAYMENT FORM | |
1. | Provide the EIN that was used or will be used to report the employee's wages on the Form W-2. |
2. | Enter the date the employee retired. Enter “Not Retired” if the employee has not retired. |
3. | Enter the date that the employee last performed services; was not expected to return to work; and was not subject to recall to render additional services. This date should be the same as or earlier than the date in item “2”. Enter “Not Retired” if the employee has not retired. |
4. |
Enter the wages that were paid to the employee in the tax year that were for services that were performed in years prior to
the tax year or
that were paid on account of retirement.
Examples (not all inclusive) of payments to be included:
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Do not include in item “4” payments:
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5. | Check whether payments listed in item 4 will be made for years after the tax year. If yes, please show the amounts and years in which these will be paid, if know. |
6. | Nonqualified deferred compensation and section 457 plans only. If you were unable to report nonqualified deferred compensation or section 457 plan payments and deferrals (contributions) on Form W-2 because both payments and deferrals occurred during the year, show the amount of wages earned by the employee during the tax year. Generally, the wages earned will be the compensation reported in block 1 of Form W-2 less payments from a nonqualified deferred compensation (or 457) plan, but including any amounts deferred under the plan during the tax year (See IRS Publication 957). |
Paperwork/Privacy Act Notice: This report is authorized by regulation 20 CFR 404.702. The information that you provide will be used in making a determination regarding the amount of Social Security benefits payable to the above named individual. While your response is voluntary, if you do not respond we may not be able to make a correct determination regarding the amount of Social Security benefits payable to the above named individual for the year in question. | |
We may also use the information you give us when we match records by computer. Matching programs compare our
records with those of other Federal, State, or local government agencies. Many agencies may use matching programs to find
or prove that a person
qualifies for benefits paid by the Federal Government. The law allows us to do this even if you do not agree to it.
Explanations about these and other reasons why information you provide us may be used or given out are available in Social Security Offices. If you want to learn more about this, contact any Social Security Office. |
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The Paperwork Reduction Act : This information collection meets the clearance requirements of 44 U.S.C. §3507, as amended by Section 2 of the Paperwork Reduction Act of 1995. You are not required to answer these questions unless we display a valid Office of Management and Budget control number. We estimate that it will take you about 20 minutes to read the instructions, gather the necessary facts, and answer the questions. | |
Form SSA-131 (8-2001) EF (06-2002) |
A nonstatutory (nonqualified) option to purchase stock which is exercised in a year after the year in which the option was earned is a special wage payment. It should not count for the social security earnings test. Nonstatutory (nonqualified) options exercised as special wage payments by retired employees or employees who continue to work while receiving social security benefits should be reported by employers using the above reporting methods.
A nonqualified deferred compensation plan is a plan or arrangement established and maintained by an employer for one or more of its employees that provides for the deferral of compensation, but does not meet the requirements for a tax-qualified deferred compensation plan. For social security and Medicare purposes, deferred compensation plans for employees of state and local governments (section 457 plans) are treated the same as nonqualified plans. Nonqualified and section 457 plans are reported differently than other special wage payments. See Reporting Amounts Deferred to Nonqualified and Section 457 Plans below for specific instructions.
Generally, when the related services are performed, nonqualified deferred compensation is subject to social security and Medicare tax when deferred. However, if nonqualified and section 457 plans contain provisions that delay the employee's right to receive payments from the plan, a period of substantial risk of forfeiture exists. The plans' deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends.
Example.
Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. The plan has no risk of forfeiture. Employee A defers $20,000 to the plan from a total salary of $200,000.
Form W-2 Completion | |
Box | Amount |
1 | $180,000 |
3* | 87,000 |
5 | 200,000 |
*Wage base maximum for tax year 2003 |
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Example—risk of forfeiture.
At the end of the risk-of-forfeiture period for Company Y's nonqualified deferred compensation plan, employee B's accumulated deferrals, plus interest earned by the plan, are $120,000, not including B's $20,000 deferral for this year. B's wages, including this year's deferred amount, are $80,000.
Form W-2 Completion | |
Box | Amount |
1 | $60,000 |
3* | 87,000 |
5 | 200,000 |
11 | 120,000 |
*Wage base maximum for tax year 2003 |
When an employee or former employee retires and begins receiving payments (distributions) from a nonqualified or nongovernmental section 457 plan, report the payments in boxes 1 and 11 of Form W-2. Report payments (distributions) from a governmental section 457 plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Example.
Employee D retired from the XYZ company and began receiving social security benefits. XYZ paid D a $12,000 bonus upon retirement for sales made in a prior year, and D received $25,000 in payments from XYZ's nonqualified deferred compensation plan. In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. D made no deferrals to the nonqualified plan this year.
Form W-2 Completion | |
Box | Amount |
1 | $52,000 |
3 | 27,000 |
5 | 27,000 |
11 | 25,000 |
Report the $12,000 bonus to the SSA using Form SSA-131, magnetic media, or a paper listing. See the format shown later in Tables 2 through 6, and see the discussion above under Reporting Special Wage Payments on page 5. |
Do not complete box 11 when payments (distributions) are made from a nonqualified plan and deferrals are reported in boxes 3 and/or 5 of Form W-2 (including current year deferrals). Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. Normally, the amount earned is the amount reported in box 1 of Form W-2 less payments from a nonqualified (section 457) plan, but including any amounts deferred under the plan during the tax year. See Form SSA-131 and its instructions on pages 6 and 7.
Example.
Employee K retired this year from Company XYZ and began receiving social security benefits. During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. K also received $75,000 in payments from the company's nonqualified plan.
Form W-2 Completion | |
Special Wage Payment | $75,000 |
Wages | $50,000 |
Minus: deferral | 35,000 |
Total reported in Box 1 | $90,000 |
Wages including deferral reported in
Boxes 3 and 5 |
$50,000 |
Leave Box 11 blank. File Form SSA-131 | -0- |
Form SSA-131 Completion | |
Amount from Box 1 of Form W-2 | $90,000 |
Minus: payments from a nonqualified plan | 75,000 |
Plus: amounts deferred into the plan during the year | 35,000 |
Total wages earned for purposes of Form SSA-131 (item 6) | $50,000 |
FILE NAME: SOSWAP.PXXXXXXX 1 (XXXXXXX 1=FIRST 7 LETTERS OF COMPANY NAME) | |||
A. | DENSITY | : | 6250 bpi |
B. | LABEL | : | SL |
C. | RECORD FORMAT | : | FB |
D. | RECORD LENGTH | : | 55 |
E. | BLOCK SIZE | : | 23430 |
F. | CODING SCHEME | : | EBCIDIC |
DATA RECORD |
SEQ
# |
TYP |
FLD
SIZE |
BEG
POS |
END
POS |
DATA ELEMENT NAME | COMMENTS | ||
1 | N | 9 | 1 | 5 | SOCIAL SECURITY NUMBER | PACKED | ||
2 | A | 15 | 6 | 20 | SURNAME | |||
3 | A | 11 | 21 | 31 | FIRST NAME | |||
4 | A | 1 | 32 | 32 | MID INITIAL | |||
5 | N | 9 | 37 | 37 | EMPLOYER IDENTIFICATION NUMBER | PACKED | ||
6 | N | 11 | 43 | 43 | AMOUNT OF SWP S9 (09) v99 | PACKED AND SIGNED | ||
7 | N | 2 | 44 | 45 | CENTURY | |||
46 | 47 | YEAR | ||||||
8 | AN | 4 | 48 | 51 | ESTABLISHMENT CODE | |||
9 | AN | 6 | 52 | 55 | FILLER | |||
PLEASE PREPARE AN EXTERNAL LABEL WITH THE FOLLOWING INFORMATION: | ||||
SPECIAL WAGE PAYMENTS — TYPE: SWP | ||||
DSN:SOSWAP.PXXXXXXX 1 | Payment Year | |||
EIN: NNNNNNNNN 2 | Reel of | |||
Company Name: | ||||
Record Count: | Return Tape? YN | |||
Block Size | LRECL Density | |||
Vol Ser # | Label? SL/NL | |||
1 XXXXXXX = FIRST SEVEN LETTERS OF THE COMPANY NAME | ||||
2 NNNNNNNNN = THE COMPANY'S EMPLOYER IDENTIFICATION NUMBER | ||||
1. |
Name and address of company
(Include street, city, state and zip code) DO NOT USE P.O. BOX ADDRESSES |
2. |
Contact name and phone number
(Provide name, area code and number of person SSA should contact regarding this tape) |
|
3. | Process type—SWP | 4. | Payment year | |
5. | EIN | 6. |
Data set name
SOSWAP.P |
|
(First 7 characters of company name) | ||||
7. | Label type (e.g., SL, NL) | 8. | Tape density | |
9. | Block size/LRECL | 10. | Record count | |
11. | Volume serial number (s) | 12. | Number of reels | |
13. | Date this tape was mailed | |||
Mail your tapes/cartridges to: | |
Social Security Administration | Please include a transmittal for each tape and/or cartridge submission. |
Tape Operations Section | |
Attn: Outside Agency | |
National Computer Center | |
6201 Security Boulevard | |
Baltimore, Maryland 21235 |
Report of Special Wage PaymentsTax Year: Page of | |||||||
---|---|---|---|---|---|---|---|
A. | Employer Name: EIN: | ||||||
Address: Contact Name: | |||||||
Phone: ( ) | |||||||
. | |||||||
1) | B. | Employee Name: (Last) | (First) (MI) | ||||
C. | SSN: | D. | SWP:$ | E. | Type: Other: | ||
2) | B. | Employee Name: (Last) | (First) (MI) | ||||
C. | SSN: | D. | SWP:$ | E. | Type: Other: | ||
3) | B. | Employee Name: (Last) | (First) (MI) | ||||
C. | SSN: | D. | SWP:$ | E. | Type: Other: | ||
4) | B. | Employee Name: (Last) | (First) (MI) | ||||
C. | SSN: | D. | SWP:$ | E. | Type: Other: | ||
5) | B. | Employee Name: (Last) | (First) (MI) | ||||
C. | SSN: | D. | SWP:$ | E. | Type: Other: | ||
INSTRUCTIONS: Enter tax year and page number. A. Employer name, employer identification number (EIN), address, the name of a contact person and a phone number where the contact person can be reached during normal business hours. B. Employee's name C. Employee's social security number (SSN). D. Total amount of special wage payments made to the employee. E. Type of special wage payment from the following list: 1. Vacation Pay; 2. Sick Pay; 3. Severance Pay; 4. Bonus; 5. Deferred Compensation; 6. Stock Options; 7. Other—Please explain. Do not use a paper listing for nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in block 11 of Form W-2 (Get Form SSA-131). | |||||||
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