Fedweek

Both the back pay and the salary rate increase are taxable for regular federal, state and other taxes and for civil service retirement contributions purposes.

Some employees who have received their pay raise and back pay are saying that the amounts are incorrect. While that’s no doubt true in some cases—given the large number of employees involved and the complexity of the recalculations—it’s also important to bear in mind the policies regarding deductions from such payments.

Both the back pay and the salary rate increase are taxable for regular federal, state and other taxes and for civil service retirement contributions purposes. Certain other types of payments that may be reflected in a back payment, such as recruitment or retention incentives, or various forms of awards, are not subject to civil service retirement contributions—they do not count toward retirement calculations—but they are taxable for other purposes.

Also, if a raise moves an employee into the next higher $1,000 income bracket, for Federal Employees Group Life Insurance Basic and Option B insurance, an additional amount is withheld to reflect the higher premium that comes with the higher coverage.

However, since biweekly deductions for FEHB, FEDVIP and FLTCIP insurance and for FSA accounts were been withheld from previous pay distributions, there is no additional deductions toward them from the back pay portion; the same applies to TSP investors who invest on a dollar amount basis.

TSP investors who invest on a percentage of salary basis have additional retroactive investments withheld, however, and FERS employees among that group also receive additional agency matching contributions into their accounts. For them and for dollar-amount investors, the FERS automatic 1 percent of salary agency contribution is increased to reflect the raise. However, lost earnings are not payable since a retroactive pay increase is not considered an agency error that would trigger payment of lost earnings.