Pay for Time Lost

From Regular

Railroad

Employment

UNITED STATES OF AMERICA

RAILROAD RETIREMENT BOARD

WWW.RRB.GOV

QUALITY REPORTING SERVICE CENTER 

312-751-4992 

FORM IB-4 (03-17) 
Page 1

TABLE OF CONTENTS

PAGE

INTRODUCTION ..............................................................................3

PART I - PAY FOR TIME LOST EXPLAINED

What is pay for time lost?...................................................................3

What are some examples of pay for time lost?...................................4

Why is it important to prevent pay for time lost problems? ...............4

How do I ensure pay for time lost is creditable as service

and compensation?..............................................................................5

Are there additional factors for allocating service months

in a personal injury case?....................................................................7

How is pay for time lost allocated when there is a court ordered 

judgment? ...........................................................................................9

PART II - TAX ISSUES

How is pay for time lost taxed for retirement purposes? ....................9

How can there be, for retirement purposes, inconsistent taxing and 

crediting of the same payment? ........................................................10

How is pay for time lost taxed for Medicare purposes? ...................10

How is pay for time lost taxed for unemployment/sickness

purposes? ..........................................................................................10

Is the tax liability of pay for time lost met by withholding a 

reimbursement amount under the Railroad Unemployment

Insurance Act (RUIA)?.....................................................................11

Where can I get information about tax rates and earnings

bases?................................................................................................11

If I'm not working, can I purchase additional service months

by paying additional taxes?...............................................................11

Is pay for time lost includable as wages for income tax

purposes? .........................................................................................11

Does withholding the correct tax amount update my service and 

compensation record? .......................................................................12
Page 2

TABLE OF CONTENTS

PAGE

PART III - PAY FOR TIME LOST AND BENEFITS

UNDER THE RAILROAD RETIREMENT ACT AND

RAILROAD UNEMPLOYMENT INSURANCE ACT

How does pay for time lost affect my entitlement to an annuity or 

sickness/unemployment benefits?.....................................................12

PART IV - HELPS AND REFERENCES

Where can I get more information? ..................................................13
Page 3

INTRODUCTION

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 pamphlet to answer the most commonly asked 

questions about pay for time lost.

This pamphlet 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 in 

this pamphlet, contact the nearest office of the RRB.

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 (20 CFR 211.3 and 322.6).

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 provisions.
Page 4

WHAT ARE SOME EXAMPLES OF PAY FOR TIME LOST?

Examples of pay for time lost include, but are not necessarily 

limited to, the following:

• 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 injury.

• A reinstatement award which includes back pay for the 

period of lost wages.

• 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 payroll process.

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 annuity.

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 
Page 5

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 

specified period.

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 elapsed.
Page 6

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 monthly pay.

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 met.

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.
Page 7

ARE THERE ADDITIONAL FACTORS FOR ALLOCATING 

SERVICE MONTHS IN A PERSONAL INJURY CASE?

When the implicit intent of a personal injury allocation is to 

provide 60,120, 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 
Page 8

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 months.

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).

Military service may be credited towards retirement benefits 

under certain conditions. To be creditable as compensation 

under the Railroad Retirement Act, service in the U.S. Armed 

Forces must be preceded by railroad service in the same or 

preceding calendar year. For additional information about 

creditable Military Service see IB-2, Railroad Retirement and 

Survivor Benefits.

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.

Contact the 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 the 

RRB.
Page 9

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.

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.
Page 10

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)?
Page 11

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 award.

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 ADDITIONAL TAXES?

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 RECORD?
Page 12

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.

HOW DOES PAY FOR TIME LOST AFFECT MY 

ENTITLEMENT TO AN ANNUITY OR SICKNESS/

UNEMPLOYMENT BENEFITS?

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 
Page 13

covers a period for which benefits under the RUIA were 

previously paid, a reimbursement is due under the RUIA.

WHERE CAN I GET MORE INFORMATION?

The Claims Adjustment and Settlement Section in the Sickness 

and Unemployment Benefits Division 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 Internal 

Revenue Service.

Any other questions about pay for time lost should be directed to 

the nearest office of the Railroad Retirement Board (RRB). Their 

addresses and telephone numbers are listed in telephone 

directories with other United States Government agencies. They 

can also be reached by calling the RRB toll-free number at (877) 

772-5772 or by visiting the agency’s website at www.rrb.gov. 

RRB offices are open to the public from 9:00a.m. to 3:30p.m. 

Monday, Tuesday, Thursday, Friday and from 9:00a.m. to 

12:00p.m. on Wednesday, except on federal holidays.
Page 14

NONDISCRIMINATION ON THE BASIS

OF DISABILITY

Under Section 504 of the Rehabilitation Act of 1973 and Railroad 

Retirement Board (RRB) regulations, no qualified person may be 

discriminated against on the basis of disability. RRB programs 

and activities must be accessible to all qualified applicants and 

beneficiaries, including those who are vision or hearing-impaired. 

Disabled persons needing assistance (including auxiliary aids or 

program information in accessible formats) should contact the 

nearest RRB office. Complaints of alleged discrimination by the 

RRB on the basis of disability must be filed within 90 days in 

writing with the Director of Administration, Railroad Retirement 

Board, 844 North Rush Street, Chicago, Illinois 60611-1275. 

Questions about individual rights under this regulation may be 

directed to the RRB's Director of Equal Opportunity at the same 

address shown above.
Page 15

FRAUD AND ABUSE HOT LINE

Call the toll-free Fraud and Abuse Hot Line if you have reason to 

believe that someone is receiving railroad retirement or 

unemployment-sickness benefits to which (s)he is not entitled; that 

persons responsible for the financial affairs of minors or 

incompetent beneficiaries are misappropriating benefits; or that a 

doctor, hospital, or other provider of health care services is 

performing unnecessary or inappropriate services or is billing 

Medicare for services not received. You may also use the Hot 

Line to report any suspected misconduct by a Railroad Retirement 

Board (RRB) employee. The Hot Line has been installed by the 

RRB's Inspector General to receive any evidence of fraud or abuse 

of the RRB's benefit programs.

Call (toll-free) 1-800-772-4258. Or you may send your 

complaints in writing to the RRB, OIG, Hot Line Officer, 844 

North Rush Street, Chicago, Illinois 60611-1275.

Please do not call the Inspector General's Hot Line with questions 

about eligibility requirements, delayed claims, or similar 

problems. Such matters should be directed to the nearest RRB 

field office.