The Affects of Back Pay on Your Railroad Retirement

Transcript:

Learn the options that the Railroader has when it comes to back pay.

Welcome, everyone, to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors. And today, I thought we'd talk about back pay. I've been getting a few comments and requests about back pay. Obviously, with the latest negotiations that came up, back pay has been in the news a little bit lately. So, I wanted to talk about how the Railroad Retirement Board treats back pay, and then also some of the things that you might want to be thinking about also from a planning/tax perspective of back pay.

What is back pay? Back pay is a retroactive wage increase. That's the way to think about it. Increase in wages from work previously done. Now, it's credited for either, this is the way the Railroad Retirement Board thinks about, it's credited for either the month the compensation is paid, when you got the check, or the period earned. Back pay. You did the work in the past, and then they're back paying you for back in the past. So, you can get it now, be credited for now, or for back in time.

Let's think about this, here. What you have to do if you want to go to back when it was earned, when you actually did the service, you had to make a timely request with your railroad to have it allocated to the month earned. I put the word timely in there because that's what the Railroad Retirement Board... They're the ones... Because you want to get the credit for that. Very, very important. So, you have to make that timely request.

And then, the railroad must make a timely adjustment. Once again, the word timely shows up. To me, that tells me, if you got the back pay or you know you're getting back pay, get on it right away. I don't feel like it's something that you can revisit 12, 18 months down the road and go, "Oh, you know what? Why don't I allocate that back to the months I earned it." You have to get on that.

And then, they suggest that you follow up on your BA-6 to see when the earnings actually occurred, to make sure that the earnings were updated. "Why is that important?", you say. Here's a couple of ways to think about. It could affect your tier two compensation rate. If you're beneath the annual maximum amount, and now you have back pay to backfill those months, your Tier Two payment could be much bigger in retirement. That's something to think about, there.

And then, the other thing here is, no service months for the back pay will be earned. You're just getting the back pay. You're not getting the service months for it. Let's say maybe if you retired and you're getting a back pay check or something along those lines, you're just not going to get the... Or maybe you left the railroad and you're getting back pay. I don't know. But the point is, you can't get the service months just because you got the check. You got to actually work.

From the planning perspective, like I said, you can affect your Tier Two portion if you're underneath the minimum. That'd be one way to think about it. Or maybe if you're in retirement, say, "Well, maybe I'll take the back pay later." You got to play around the tax rate. If you're going to be in a higher tax bracket in the previous year, you don't want the back pay so much as opposed to maybe this year maybe your back pay will be down. "Oh, I'll take the back pay in because my tax bracket's going to be a bit lower." So, think about that when it comes to back pay. A lot of different things going on there.

I hope this gets you to start thinking about some of the strategies around back pay, if that's something in your offing, so to speak. Feel free to reach out to me if you're at or near retirement, you want to go through the boarding for railroad retirement process. And maybe if you have a back pay issue surrounding retirement, we can go through that. That'd be great.

Subscribe to the YouTube channel. Do appreciate that. Click on the little bell to get the notifications to get the latest videos. All right? Subscriber numbers are fantastic, so that's great to see. And until next time, everyone, please stay safe, stay on track, and take care. So long, everybody. Bye.

Get Free Railroad Retirement Assessment

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.