5 CFR Appendix A to Subpart H of Part 550
Information on Computing Certain Common Deductions From Back Pay Awards
November 4, 2020
To determine the net back payment owed an employee, an agency must make certain required deductions. (See §550.805(e)(3).) To compute these deductions, an agency must determine the appropriate base or follow other rules, consistent with applicable law. Some deductions, such as tax deductions, are not subject to OPM regulation. To assist agencies, this appendix summarizes the rules for certain common deductions. For further information on Federal tax deductions from back pay awards, please contact the Internal Revenue Service directly or review relevant IRS publications.
Open Table
| Type of deduction | How to Compute the deduction |
|---|---|
| (a) Mandatory employee retirement contributions | Compute the deduction based on the basic pay portion of gross back pay before adding interest or applying any offset or deduction. |
| (b) Life insurance premiums | Compute the deduction based on the basic pay portion of gross back pay before adding interest or applying any offset or deduction. |
| (c) Social Security (OASDI) and Medicare taxes | Compute the deduction based on adjusted gross back pay (gross back pay less the offset for outside earnings under §550.805(e)(1), but before adding interest). The deduction may be reduced dollar-for-dollar by the amount of any Social Security or Medicare taxes that were withheld from erroneous payments made in the same calendar year as the back pay award, but only if— |
| (1) Those erroneous payments were actually recovered by the Government by offsetting the back pay award as provided in §550.805(e)(2); and | |
| (2) Those withheld taxes have not already been repaid to the employee. | |
| Note: Social Security taxes are subject to the applicable Social Security tax wage base limit. In addition, see IRS guidance regarding possible correction and refunding of Social Security and Medicare taxes withheld from erroneous payments in a prior calendar year. | |
| (d) Federal income tax withholdings | Compute the deduction based on adjusted gross back pay (gross back pay less the offset for outside earnings under §550.805(e)(1), but before adding interest) less any part of back pay not subject to income tax deductions, such as nonforeign area cost-of-living allowances and contributions to the Thrift Savings Plan that are deducted from the pay of the employee. The deduction may be reduced dollar-for-dollar by the amount of any Federal income taxes withheld from erroneous payments made in the same calendar year as the back pay award, but only if— |
| (1) Those erroneous payments were actually recovered by the Government by offsetting the back pay award as provided in §550.805(e)(2); and | |
| (2) Those withheld taxes have not already been repaid to the employee. | |
| Note: Additional Federal income tax withholdings from the interest portion of the back pay award may be required by the Internal Revenue Service in certain specific circumstances. |
[64 FR 69179, Dec. 10, 1999]
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