Pay for Time Lost from Regular Work
The following is excerpted from the IB-4
The Railroad Retirement Board (RRB) frequently receives questions from
railroad employers and employees and their respective legal agents about the
treatment of pay for time lost from regular employment. Because this can be a
complex and confusing subject, we have prepared this to answer the most commonly
asked questions about pay for time lost.
This contains general information about pay for time lost. However, certain
limitations, exceptions, and special cases are not covered. If you have any
question about the information covered below, contact the
nearest office of the RRB.
[Back to top]
Part I - Pay for Time Lost Explained
What is Pay For Time Lost?
Pay for time lost is compensation paid by a railroad employer which is
creditable under the Railroad Retirement Act (RRA) and the Railroad Unemployment
Insurance Act (RUIA) and which is attributable to lost earnings for an
identifiable period of absence from active service. Pay for time lost is not the
purchase of service credits by payment of railroad retirement taxes.
The intent behind the pay for time lost concept is to treat an employee as if
he or she had actually performed compensated service during an identifiable
period of time. The effect of pay for time lost upon eligibility and benefits
under the RRA and the RUIA is identical to the effect of regular earnings for
which service and compensation credit are received.
The statutory basis for pay for time lost is found in Section 1(h)(2) of
the RRA (45
USC 231(h)(2)), Section 1(h)(i) of the RUIA (45
USC 351(i)), and Sections 211.3 and 322.6 of the Railroad Retirement Board's Regulations
The most common type of pay for time lost arises out of "on the job" personal
injury settlements, but other types of agreements may have pay for time lost
What are some examples of Pay For Time Lost?
Examples of pay for time lost include, but are not necessarily limited to,
- A personal injury award or settlement which allocates a portion of the
damages as lost wages for a specific period following the date of the
- A reinstatement award which includes back pay for the period of lost
- A dismissal allowance or guaranteed wage agreement.
- An allowance paid for the loss of earnings resulting from job
displacement to a less remunerative position.
Why is it Important to Prevent Pay For Time Lost Problems?
Unfortunately, it is not unusual for errors to be made when structuring a pay
for time lost agreement and reporting the payment as creditable compensation to
the employee's records at the Railroad Retirement Board. Some errors stem from a
lack of a clear understanding of the nature of pay for time lost. Other errors
occur because payments for time lost are usually made outside the regular
It is important that pay for time lost agreements between employers and
employees are structured correctly. Frequently, an agreement is established with
the intent of attaining additional months of creditable railroad service so an
employee will meet the service requirement for an annuity under the Railroad
Retirement Act (RRA). If the agreement overlooks certain factors or does not
meet the pertinent statutory requirements, the employee may be denied that
It is also important that pay for time lost be reported as service and
compensation correctly and timely. Annuity applications under the RRA and
benefit claims under the Railroad Unemployment Insurance Act (RUIA) are
adjudicated with the information available on the employee's earnings record. If
the record is not updated and if we have no knowledge of additional credit which
should be on the record, RRA annuities to disabled employees or RUIA benefits to
sick or unemployed employees may be greatly delayed or even erroneously denied.
How Do I Ensure Pay For Time Lost is Creditable as Service and Compensation?
Six principles must be followed in order to ensure that a payment qualifies
as creditable pay for time lost for which service and compensation credit may be
received. The six principles are:
1. The payment must be made with respect to an identifiable period of time.
The months of the period of absence from active service must be specified.
For example, the agreement should state the pay for time lost is "for the 12
month period beginning October 1994 and ending September 1995." The
compensation is considered earned in, and is therefore creditable to, that
2. An employment relationship must exist in the months to be credited with
the pay for time lost.
Pay for time lost may be allocated into the future as long as an employment
relationship is retained for that period. If an agreement requires that an
employee must resign in order to receive the payment, the employment
relationship ceases upon the resignation. An allocation to months after the
resignation date is not allowed because the allocated service months cannot be
considered genuine time lost as an employee.
If pay for time lost is allocated into the future and an employee does not
resign, the service months are not creditable until the time lost has actually
3. The allocation must relate to the actual period of absence from service
for which the payment is made.
Pay for time lost due to a personal injury must be allocated to months
after the date of the injury. Service months allocated to months missing from
an employee's record before the injury is not allowed.
4. The amount of the pay for time lost must relate to an employee's normal
By regulation, a monthly allocation of at least ten times the employee's
daily pay rate in effect on the date of the injury is ordinarily considered a
reasonable relationship to actual lost wages. A lesser amount is considered to
be a token payment and is not acceptable to the Railroad Retirement Board.
For example, Employee Jones had a daily pay rate of $130.00 when he was
injured. Therefore, a minimum of $1,300.00 must be allocated as pay for each
month allocated as time lost.
A higher compensation amount per month may be allocated, but it cannot
exceed the annual maximum earnings base limitations for the years involved.
Cost-of-living or other increases which would have applied to the employee's
pay over the period of time lost need not be considered.
5. The railroad retirement tax obligation for the pay for time lost must be
Pay for time lost is considered compensation under the Railroad Retirement
Tax Act. Thus, an employer is required to withhold and pay the employment
taxes due on pay for time lost.
6. An agreement for pay for time lost must specify whether or not the
intention of the payment is to provide service and compensation credit under
the Railroad Retirement Act.
If you do not intend to receive service and compensation credit for your
pay for time lost, the agreement must say that.
Are There Additional Factors For Allocating Service Months in a Personal
When the implicit intent of a personal injury allocation is to provide 120,
240, or 360 service months for the employee's record at the Railroad Retirement
Board (RRB), it is vital to ensure that an allocation for time lost correctly
provides the total number of service months desired.
If a shortage of service months occurs, the RRB has no authority to
reallocate months. The allocation may be re-opened only if both parties to the
settlement are agreeable. However, it is important to note that the RRB will
accept a re-opened agreement with respect to pay for time lost only within the
four year time limitation imposed by Section 9 of the Railroad Retirement Act.
To prevent a shortage of service months, these three factors affecting
service months must be considered:
1. Do not allocate pay for time lost to a month or months for which the
employee has already received service month credit.
Occasionally, an employee has service months reported for vacation pay or
service months reported by another railroad employer (for example, union
activity). However, credit can be received only one time for any given month.
Because the period specified is the period for which service credit is due,
a month allocated to the same month already on record may result in a shortage
of the total months desired. To prevent the duplicate reporting of service
months, always contact the nearest office of the Railroad Retirement Board for
an exact accounting of the months on record as of the date of the request.
Sometimes an award of back pay is for the same months for which service is
already credited. In such a case, even though the months are not creditable,
the compensation from the award is creditable.
2. When an allocation period is determined, do not consider deemed service
months after the date of the personal injury in the total number of service
A pay for time lost allocation increasing service and compensation will
generally eliminate or reduce the number of deemed service months on record
for any affected year. This is true because deemed service months are the
product of a calculation. If the components of that calculation change as the
result of an adjustment to service and compensation due to a payment for time
lost, then the number of deemed service months to which an employee is
entitled is likely to change.
3. Military service may, under certain conditions, be counted as railroad
service under the Railroad Retirement Act (RRA).
Creditable military service is not currently maintained in the records of
the Railroad Retirement Board (RRB). The possibility that an employee has
military service which meets the requirements to be creditable under the RRA
should be considered because creditable military service may reduce the number
of allocated months needed to attain eligibility for an annuity.
nearest office of the RRB for assistance in determining whether a military service
period is creditable. Be prepared to provide proof of that military service to
How is Pay For Time Lost Allocated When There is a Court Ordered Judgment?
When an employer pays an employee a settlement for a personal injury, the
whole amount of the settlement is considered pay for time lost, if there is no
designation that the settlement amount, or any part of it, is for factors other
than pay for time lost.
When an employee receives a court ordered judgment as the result of a
personal injury action against an employer, the employer and the employee may
reach an agreement as to what amount of the judgment is attributable to time
lost, if the judgment does not indicate that any amount of it is attributable
for time lost.
Absent an agreement between the employer and the employee, the Railroad
Retirement Board (RRB) has the authority to determine what, if any, amount of
the judgment is attributable to pay for time lost. The RRB's determination is
based upon the pleadings and evidence submitted at the trial. Unlike the case of
a settlement of a personal injury action, the payment to an employee by way of a
judgment does not automatically result in a pay for time lost allocation.
[Back to top]
Part II - Tax Issues
How is Pay For Time Lost Taxed For Retirement Purposes?
All compensation under the Railroad Retirement Tax Act (RRTA) is subject to
the Tier I and Tier II tax rates and the annual maximum earnings bases in effect
when the payment is made. This is also true of pay for time lost.
The nature of pay for time lost is such that the payment is attributable to
lost earnings in a different time period. Therefore, it is creditable, for
retirement purposes under the Railroad Retirement Act, to the months to which
the time lost payment relates. But, the taxation of the payment under the RRTA
always relates to the calendar year in which the payment is made.
How Can There Be For Retirement Purposes Inconsistent Taxing and Crediting of
the Same Payment?
If a payment for time lost is allocated to a period other than the year of
payment, the taxable amount and creditable amount of the pay for time lost may
differ. There are circumstances where pay for time lost may be fully creditable
under the Railroad Retirement Act, but taxable only to a limited extent, or not
taxable at all, under the Railroad Retirement Tax Act. On the other hand, pay
for time lost may be taxed at a higher percentage rate and subject to a higher
earnings base than it would have been had it actually been paid in the period
for which it is considered creditable.
How Is Pay For Time Lost Taxed For Medicare Purposes?
Medicare taxes must be withheld from a payment for time lost. The railroad
retirement and Medicare parts of the Tier I tax rate have separate, different
earnings bases. When an employee's taxable earnings attain the Tier I maximum
earnings base, Medicare taxes must continue to be deducted because there is no
Medicare maximum amount.
How Is Pay For Time Lost Taxed For Unemployment/Sickness Purposes?
Unlike Tier I and Tier II tax, the amount of the employer contributions due
under the Railroad Unemployment Insurance Act is computed at the rates in
effect, subject to a monthly limit, during the months to which the pay for time
lost payment relates.
Is The Tax Liability of Pay For Time Lost Met By Withholding a Reimbursement
Amount For Benefits Recoverable Under The Railroad Unemployment Insurance Act (RUIA)?
Reimbursement is due under the RUIA if a payment for time lost covers a
period for which sickness or unemployment benefits were previously paid.
However, withholding this amount from the award is a separate matter and should
never be confused with satisfying the railroad retirement tax liability for the
Where Can I Get Information About Tax Rates And Earnings Bases?
Information about the annual tax rate percentages, maximum earnings base
amounts, and employer contribution amounts for any year may be obtained from the
nearest office of the Railroad Retirement Board. The payroll department of any
railroad employer should also be able to provide this information.
If I'm Not Working, Can I Purchase Additional Service Months By Paying
An employee who is not working may not buy additional service months simply
by paying the taxes for the months desired. Service months may never be bought
just by the payment of taxes.
Is Pay For Time Lost Includable As Wages For Income Tax Purposes?
The Railroad Retirement Board cannot speak authoritatively on issues
involving income tax law. Therefore, we must refer questions relating to the
treatment of pay for time lost under federal income tax laws to the Internal
Revenue Service (IRS). However, we can advise that, in the past, under certain
conditions, the IRS has held that pay for time lost is includable as wages for
income tax purposes.
Does Withholding The Correct Tax Amount Update My Service And Compensation
Withholding the proper taxes is not sufficient to update an employee's record
of service and compensation at the Railroad Retirement Board (RRB). An
appropriate report of service and compensation must also be submitted by the
employee's railroad employer. As noted previously, pay for time lost should be
reported as service and compensation for the allocated period of absence because
it is considered earned under the Railroad Retirement Act in that period.
An employee applying for retirement benefits at the expiration of an
allocation period should submit documentation of the period covered by the
agreement with the retirement application. This is necessary to establish
service eligibility if the report for additional service credit is not yet
reflected in the employee's records at the RRB. The RRB will then solicit the
necessary service and compensation report, but the final annuity award must be
delayed until the report is received.
[Back to top]
Part III - Pay For Time Lost and Benefits Under The Railroad Retirement
Act & Railroad Unemployment Insurance Act
How Does Pay For Time Lost Affect My Entitlement To An Annuity Or
Because pay for time lost is effectively the same as compensated service for
active employment, an employee is not entitled to an annuity under the Railroad
Retirement Act with respect to any months to which pay for time lost has been
allocated. For this reason, a pay for time lost allocation to an employee who is
already receiving an annuity may cause an annuity overpayment.
For example, an injured employee may apply for and begin receiving a
disability annuity while his settlement is pending. If the settlement is
finalized and includes pay for time lost for months for which he was also paid
an annuity, the annuity is overpaid for those months.
Similarly, an employee is also not entitled to sickness or unemployment
benefits under the Railroad Unemployment Insurance Act (RUIA) with respect to
any month to which pay for time lost is allocated. If a payment for time lost is
made which covers a period for which benefits under the RUIA were previously
paid, a reimbursement is due under the RUIA.
[Back to top]
Part IV - Help and References
Where Can I Get More Information?
The Claims Adjustment and Settlement Section in the Bureau of Unemployment
and Sickness Insurance can provide information about the correct amount to
withhold from pay for time lost for reimbursement of benefits paid under the
Railroad Unemployment Insurance Act. The telephone number of the Claims
Adjustment and Settlement Section is (312) 751-4820.
Questions relating to the treatment of pay for time lost under Federal income
tax laws should be directed to the
Any other questions about pay for time lost should be directed to the
office of the Railroad Retirement Board (RRB). Addresses and telephone
numbers for offices of the RRB are listed in telephone directories under "United
States Government." Most business can be conducted by telephone, but if you need
to visit an office, you may want to call ahead to arrange a convenient time.
[Back to top]