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1120.5 Legislative Background

Under the 1937 Railroad Retirement (RR) Act, an age and service annuitant and a 

spouse annuitant who were paid under the railroad formula had no earnings limitations. 

The only work restrictions were that an annuity was not payable for any month an 

annuitant returned to railroad or last pre-retirement non-railroad employment (LPE).

Section 2(f) of the 1974 Railroad Retirement Act extends work deductions to many 

retirement employee and spouse annuitants who were never subject to them. The law 

was effective 1-1-75. However, work deductions could be imposed prior to 1-1-75 for 

annuitants who filed in 1975 with a retroactive annuity beginning date (ABD) of 1974.

The intent of the 1974 RR Act was to assess work deductions (W/D) under the new law, 

as if railroad compensation were wages under the Social Security (SS) Act. The RR Act 

provisions for assessing work deductions under the annual earnings test are the same 

rules as those applied under the SS Act. However, the law was not intended to 

penalize railroad employees whose earnings before 1975 had been substantially 

railroad compensation. Therefore, the railroad retirement work deduction provisions 

apply only to employees and spouses (and divorced spouses beginning 10-1-81) who

have a work deduction insured status (see FOM-I-1120.20). A work deduction insured 

status is determined according to the number of quarters of coverage of all SS wages 

and of railroad compensation beginning 1-1-75. Work deductions are applied only to 

certain parts of the annuity that are attributable to all wages and to railroad 

compensation beginning 1-1-75.

Under the 1988 Amendments, effective December 1, 1988, an employee or spouse can 

continue in or return to last person service and still be entitled to an annuity. However, 

LPE earnings reductions apply to tier II and any supplemental annuity. The reduction is 

one dollar for every two dollars earned in LPE up to a maximum of 50% of each 

component. A spouse's tier II is reduced for the employee's LPE earnings as well as 

the spouse's own.

Unlike excess earnings work deductions, which are calculated on the basis of annual 

earnings, LPE work deductions must be calculated on the basis of monthly earnings. 

The reduction occurs no matter how much money is earned or how old the annuitant is.

The RR Act contains penalty rules for failure to report earnings. Similar rules have 

always applied for disability annuitants; for retirement annuitants, penalties may apply 

beginning 1-1-75 if earnings are not reported timely (see FOM-I-1120.15).

1120.10 Effect Of Earnings

Not all age and service and spouse annuitants (including divorced spouses) are subject 

to the annual earnings limitation. To be affected by the earnings limitation, the 

employee or other beneficiary must have a work deduction insured status. Also, only 

part of the annuity rate may be withheld for excess earnings, even though the full 
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benefit can be withheld in RR Act survivor annuities and SS Act benefits. The work 

deduction components that may be withheld are: the portion of tier I that is based on all 

SS Act wages and on railroad compensation beginning 1-1-75, and the vested dual 

benefit (VDB). See FOM-I-1120.35.

If the employee has a work deduction insured status, both the employee and the spouse 

may lose part of their respective annuities because of the employee's excess earnings.

The spouse may lose only her own work deduction components if she works and the 

employee does not. If they both work, the employee's excess earnings must be 

recovered first. A divorced spouse annuity is affected in the same manner as a legal 

spouse annuity. However, a divorced spouse who has been divorced from the 

employee at least 2 years will not be affected by the employee's earnings beginning 1-

1-85. 

An employee or spouse subject to deductions for work may never lose more than the 

amount of the work deduction components times the months of eligibility in a year, 

regardless of the amount of excess earnings to be recovered. However, an annuitant 

with last person service earnings is subject to separate LPE work deductions, as 

discussed in FOM-I-1121.

Under the provisions of the RR Act, no annuity is payable for any month the annuitant 

works in railroad service. Exception: Beginning August 17, 2007, an independently 

entitled divorced spouse can be paid an annuity even if the employee is still 

working for the railroad.

NOTE: All references to a spouse annuitant in this chapter include a divorced spouse, 

unless stated otherwise.

1120.15 Penalty for Failure To Report Earnings

If a retirement annuitant subject to work deductions fails to make a timely report of 

earnings and an overpayment results, he may be subject to a penalty. Penalty 

deductions may also apply to annuities payable under the overall minimum (O/M) 

guaranty.

1120.15.1 When Report Is Due 

FOR EARNING YEARS PRIOR TO 2002

Ordinarily, a report is considered timely if it is received by April 15 of a year. However, if 

reporting Forms G-19 or G-19L are released after February 15, the annuitant is allowed 

at least 60 days after their release to return the questionnaire.

A report is considered late if it is received after the due date (April 15 or 60 days), 

unless a request for extension of time was requested and granted. It is the bureau's 

policy to be liberal with requests from annuitants to submit late reports. The time period 

for reporting may be extended up to 3 months. Any honest misunderstanding of the 
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responsibility or failure to report because of illness in the family, the press of other 

obligations (e.g., filing income tax report), or the like, constitutes good cause. No 

penalties may be imposed if there is good cause for a late report.

FOR EARNING YEARS 2002 AND LATER

RRB will consider the Social Security Administration’s report of earnings to be the 

annuitant’s official report of earnings. RRB will secure the earnings information directly 

from SSA. In effect, all reports will be considered timely filed.

The penalty provision is still part of the Social Security Act and therefore, a penalty is 

still possible since RRB’s penalties are based on rules established in the Social Security 

Act. 

The annuitant still has to file a report if any of the following conditions apply:

• The annuitant starts working and expects to earn more than the annual exempt 

amount;*

• The annuitant’s employment is not covered under the Social Security Act;*

• The annuitant stops working;

• The annuitant goes to work for a railroad or railroad labor organization; or

• RRB requests the annuitant to report earnings.

*If either of these conditions occurs, penalties will still be applicable.

Also, in cases where it is clear than an annuitant has made an attempt to receive 

benefits through fraudulent means by failing to report the proper earnings to RRB, late 

reporting penalties will still be applicable.

EXAMPLE: An annuitant would be subject to a penalty if he or she attempted to avoid 

deductions under the earnings test by willfully and knowingly failing to report their 

correct earnings to SSA, such as a self-employed beneficiary who does not file an SE 

tax return when required, or an annuitant who defers his or her wages and fails to report 

this to SSA.

If a penalty deduction applies for an earning year 2002 or later, it will be assessed using 

the procedure for earning years prior to 2002.

1120.15.2 Deduction Schedule

If "good cause" for the late earnings report is not met in retirement cases, the following 

deduction schedule applies:
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• For the first late report, the penalty deduction is equal to the work deduction 

components applicable for December of the report year, except that if the amount of 

the deduction imposed for the taxable year (or years if more than one year is 

considered as the first failure) is less than the work deduction components for 

December, the penalty deduction is an amount equal to the deduction imposed, but 

not less than $10. 

Example: Mr. Stone became entitled to an annuity in 2007 and had reportable 

earnings for 2008 and 2009. He did not make his annual reports for those years 

until 2010. His 12-2009 work deduction components totaled $1403.26. His 

deduction imposed for the 2008 and 2009 excess earnings was 1226.00. Since this 

is Mr. Stone's first failure to report and his excess earnings deduction is less than the 

actual work deduction components applicable, the penalty amount to be applied is 

$1226.00.

• For the second late report, the penalty deduction is two times the work deduction 

components for December of the year in which the earnings were made. (THERE IS 

NO PENALTY LIMITATION FOR THE SECOND AND SUBSEQUENT FAILURES 

TO REPORT EARNINGS.)

• For the third and any subsequent late report, the penalty deduction is three times the 

work deduction components for December of the year in which the earnings were 

made.

Penalties for any given year may never exceed the number of months for which the 

annuitant was entitled to payment in that year.

Use the following guidelines in determining whether a failure to file a timely report is 

first, second, or subsequent failure:

(1) No Prior Failure

Where no penalty deduction has previously been imposed against the annuitant 

for failure to make a timely report, all taxable years (and this may include 2 or 

more years) for which a report of earnings is overdue are included in the first 

failure.

The latest of such years for which good cause for failure to make the required 

report is used to determine the penalty amount. 

EXAMPLE: Mr. Smith became entitled to an annuity in 2004 and had reportable 

earnings for 2004, 2005, and 2006. He did not make his annual reports for those 

years until July 2007. When multiple years are involved in the first delinquent 

report, the latest year is used to determine the penalty amount. Therefore, the 

penalty is equal to his December 2006 work deduction component(s).
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EXAMPLE: Using the same criteria presented in the example above, assume 

that it was determined that Mr. Smith was found to have good cause for not 

making a timely report for 2006. In this situation, the first failure to make a timely 

report would be 2005 and the penalty would be the December 2005 work 

deduction component(s). 

(2) Second and Subsequent Failures

After one penalty deduction has been imposed, each taxable year for which a 

timely report of earnings is not made, beginning with reports of earnings which 

become delinquent after the date of the first delinquent report, and for which 

good cause for failure to make the required report is not found, is considered 

separately in determining whether the failure is the second or subsequent failure 

to report timely.

EXAMPLE: Mr. Thomas incurred a penalty deduction for not making his 2003

earnings report until July 2004. In August 2006, it was found that Mr. Thomas 

had not made a timely report of either his 2004 or 2005 earnings, and good 

cause was not present with respect to either year. The penalty for 2004 is equal 

to twice his work deduction component(s) for December 2004. The penalty for 

2005 is equal to three times the work deduction component(s) for December 

2005. 

1120.15.3 Applying Penalties

Penalties are to be applied at the same time the overpayment is being worked up and 

are included as part of the total overpayment. The explanation regarding the penalty is 

included in the overpayment letter. If penalty deductions should have been assessed, 

but were overlooked when the overpayment was being worked up, they can be 

assessed during the reconsideration process. Good cause for late filing can also be 

developed during the reconsideration process. The overpayment amount in the 

Program Accounts Receivable (PAR) system includes the penalty amount. The penalty 

amount is recovered by the same method of recovery selected by the overpaid person 

to repay the regular overpayment amount.

1120.20 Work Deduction Insured Status Defined

An employee, spouse or divorced spouse has a work deduction insured status if the 

requirements in this section are met. FOM-I-230 explains the requirements for a quarter 

of coverage and an insured status.

1120.20.1 Employee Requirements

An employee has a work deduction insured status if he:

A. Has sufficient wage quarters of coverage (QC) and is eligible for an SS benefit 

on his own earnings record as of 12-31-74; or
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B. Would qualify for an SS benefit on his own earnings record if old enough; or

C. Has accumulated wage QCs which, when added to all compensation quarters of 

coverage after 1974, would equal the number of QCs required to have an insured 

status at SSA. The following formula is used to determine the number of QCs 

acquired toward a W/D insured status:

SS QC (all wages)

+ RR QC (compensation after 1974)

QC for W/D insured status

EXAMPLE: An employee born in 1939 needs 40 wage QCs to be insured at 

SSA. When he retired from a railroad in January 2009, he had 18 wage QCs and 

34 compensation quarters after 1974. He has a work deduction insured status 

even though he doesn't have enough wage QCs for an insured status at SSA.

Before 8-13-81, an auxiliary vested dual benefit (VDB) could be paid to an 

employee on another person's earnings record. Entitlement to such a VDB does 

not, by itself cause a W/D insured status. However, an employee who is entitled 

to an auxiliary VDB may have a W/D insured status based on his own earnings 

record, according to the preceding criteria.

Beginning 10-1-84, any employee who has worked in the railroad industry 

consistently since 1-1-75 will have a W/D insured status. He will have a W/D 

insured status based solely on compensation QCs, even if he has no wage QCs. 

Forty QCs will have elapsed beginning 1975 through 1984, and all employees 

are fully insured at SSA when they have 40 QCs. The W/D insured status is 

attained 10-1-84, because a W/D insured status is acquired as of the first month 

of the quarter in which the employee earns his qualifying QC (see FOM-I1120.25). Of course, an employee may acquire a W/D insured status based on 

compensation alone before 10-1-84, depending on his date of birth. For 

example, an employee born in 1920 needs only 31 QCs, and 31 compensation 

QCs have elapsed between 1-1-75 and 9-30-82. His W/D insured status is 

effective 7-1-82, the first day of the quarter. Most employees will fit into this 

category, and now have a work deduction insured status.

The following chart shows the date on which an employee will acquire a W/D 

insured status based solely on compensation, if he has worked consistently in 

the railroad industry since 1974.
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YEAR OF

BIRTH

REQUIRED

QCs

DATE OF W/D INSURED 

STATUS

1920 31 7-1-82

1921 32 10-1-82

1922 33 1-1-83

1923 34 4-1-83

1924 35 7-1-83

1925 36 10-1-83

1926 37 1-1-84

1927 38 4-1-84

1928 39 7-1-84

1929 and on 40 10-1-84

The date on which a W/D insured status is attained would be earlier if the 

employee has any wage QCs.

An employee who began working in the railroad industry after 1974 will have a 

W/D insured status based on compensation alone when he completes 120 

months of railroad service. His entire tier I will be subject to work deductions 

(see FOM-I-1120.35).

When military service (M/S) is credited as wages, it will be counted as wage 

QCs. Those QCs could give the employee a W/D insured status when they are 

combined with other wage QCs and with compensation QCs after 1974. When 

military service before 1975 is used as compensation, it will not result in extra 

QCs for a W/D insured status.

1120.20.2 Spouse Requirements

A spouse (including a divorced spouse) has a work deduction insured status if she:

A. Is married to an annuitant who has or acquires a work deduction insured status; 

or

B. Is receiving a vested dual benefit (VDB). Beginning 8-13-81, no new VDB may be 

paid to a spouse. If a spouse is receiving a VDB, she has a W/D insured status, 

and the VDB and the tier I W/D components may be withheld. If a VDB cannot 
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be paid to her, or if she is a divorced spouse and not entitled to a vested dual 

benefit, she does not have a W/D insured status unless the employee does, as 

stated in A.

NOTE: Entitlement to social security benefits on an earnings record other than 

the employee's or the spouse's own record does not cause a work deduction 

insured status.

1120.25 When W/D Insured Status Is Acquired

A work deduction insured status is acquired as of the first month of the quarter in which 

the employee earns the qualifying QC.

Beginning in 1978, SSA wage quarters are determined based on an annual report of 

earnings rather than the wages earned each quarter. Under the annual reporting 

method, one quarter of coverage is given for a specific amount of wages earned in the 

year regardless of when the wages were earned. FOM-I-230.140 lists the amount of 

earnings required each year for a QC. For example, in 1982 a QC is given for each 

$340.00 of wages earned in the year. Therefore, if a person earned a total of $800.00 

in 1982, he would get credit for 2 wage quarters in 1982, regardless of when the 

earnings were made. The W/D insured status would be acquired at the beginning of the 

second quarter.

EXAMPLE: An employee has 28 QCs through December 1981 and needs 30 QCs for a 

W/D insured status. The employee worked in January of 1982 and earned $1,600.00.

The $1,600.00 will give him 4 QCs for 1982. The 2nd quarter of 1982 is when he 

acquired his 30th QC; he receives one QC for each $340.00 of wages. Therefore, he 

has a W/D insured status effective 4-1-82.

Based on the annual report of earnings, the RRB may not receive notice of wages 

earned in a year until September of the following year. Therefore, it may be determined 

that an employee has a W/D insured status based on current earnings reported by the 

employee.

1120.30 First Year of Entitlement For Monthly Earnings Test

The monthly earnings test may apply only in the first year after 1977 in which the 

annuitant is entitled to an annuity and has a non-work month (see FOM-I-1105.40). 

However, special rules apply for determining the grace year in retirement cases, since 

the employee must have a W/D insured status before work deductions for excess 

earnings may apply.

1120.30.1 Employee Has W/D Insured Status on Annuity Beginning Date

The first year of entitlement for the purpose of determining a non-work month begins 

with the month the annuity begins to accrue, if the annuity is a full age annuity, a 60/30 
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annuity or an age reduced annuity, and the employee has a work deduction insured 

status on his annuity beginning date (ABD).

1120.30.2 Employee Acquires W/D Insured Status After ABD

If an age and service annuitant does not have a work deduction insured status on his 

ABD, but acquires it at a later date, entitlement for the purpose of determining a nonwork month begins with the first month of the quarter the annuitant acquires the 

qualifying quarter for a work deduction insured status.

If a disability annuitant (either occupational or total and permanent) acquires a work 

deduction insured status after age 65, entitlement for the purpose of determining a nonwork month begins with the first month of the quarter that the work deduction insured 

status is acquired. If the disability annuitant acquires a W/D insured status before age 

65, entitlement for the purpose of determining a non-work month begins with the month 

the annuitant attains age 65.

1120.30.3 Entitlement for Purpose of Determining Non-Work Month for Spouse

Entitlement for the purpose of determining a non-work month for the spouse is the 

month the employee acquires a work deduction insured status.

1120.35 Excess Earnings Work Deduction Components Defined

The employee and spouse excess earnings W/D components are defined in this 

section. An age reduction applies to the excess earnings work deduction components if 

the annuity is reduced for age. See FOM-I-1120.45 for field office procedure in 

identifying work deduction components.

1120.35.1 Tier I W/D Component

The employee and spouse tier I W/D components represent the portion of tier I that is 

attributable to all wages and to railroad compensation after 1974.

A. Employee - The employee's tier I W/D component is called PIA 2 (Primary 

Insurance Amount). In this chapter, it will be referred to as the "tier I W/D 

component."

The employee's tier I W/D component equals the difference between the tier I 

PIA 1 based on all wages and compensation, and the PIA 17 based solely on 

compensation prior to 1975. The resultant tier I W/D component equals PIA 2, 

and is based on the sum of all wages plus compensation earned after 1974.

Even though PIA 17 is computed based on compensation through 1974 only, 

cost-of-living (COL) increases are applied to PIA 17 as they are to PIA 1. The 

amount of the tier I W/D component changes with each COL increase, and may 

also increase as the tier I PIA 1 is recomputed for additional earnings. Delayed 
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retirement credits (DRCs) may also increase the amount of the tier I W/D 

component.

The tier I W/D components are gradually increasing, as the years of 

compensation after 1974 on which the calculation is based are increasing. The 

tier I W/D component equals tier I for an employee who acquires his first month 

of railroad service after 1974, since PIA 17 equals zero.

B. Spouse - The spouse's tier I W/D component equals one-half of the employee's 

tier I W/D component, rounded down to the nearest multiple of $0.10.

1120.35.2 Vested Dual Benefit W/D Component

The entire vested dual benefit (VDB) amount is the VDB W/D component for the 

employee or the spouse. The VDB being paid is the amount used in assessing work 

deductions for excess earnings.

1120.35.3 Chart Summarizing W/D Components

The following chart summarizes the excess earnings W/D components for an employee 

or spouse.

EMPLOYEE SPOUSE

TIER I W/D COMPONENT 

(PIA 2)

PIA 1 minus PIA 17 

updated for COL increases

50% of employee tier I W/D 

component

VESTED DUAL BENEFIT 

W/D COMPONENT

Entire Vested Dual Benefit Entire Vested Dual Benefit, 

if any.

1120.35.4 W/D Components Involving Actuarial Adjustment or Waiver

If the annuity is reduced for an actuarial adjustment, charge the excess earnings against 

the unreduced work deductions components.

If an annuity is reduced by waiver, charge the excess earnings against the reduced 

work deduction components.

1120.36 Age Reduced Work Deduction Components

If the annuitant is receiving a pre-1981 amendment age reduced annuity, follow the 

instructions in Appendix F, “Form G-101a Instructions”. These detailed instructions 

explain how to compute the appropriate age reduction factor and how this factor is 

applied.
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If the annuitant in receiving a 1981 amendment reduced age annuity, apply the age 

reduction factor as of the annuity beginning date (ABD) to the work deduction 

components.

Example: If the gross tier 1 work deduction component is $100, the gross vested dual 

benefit is $50, and the age reduction factor on the ABD is .25000, multiply the .25000 by 

$100 and subtract that product from $100 to obtain the adjusted tier 1 work deduction 

component of $75.00. Multiply .25000 by $50 and subtract that product from $50 to 

obtain the adjusted vested dual benefit work deduction component of $37.50.

If the annuitant is receiving an annuity under the 60/30 provisions that has an age 

reduction subject to recalculation at age 62, use the age reduction factor on the ABD to 

adjust the tier 1 work deduction component before the effective date of the age 62 

recalculation and the recalculated age reduction factor to adjust the tier 1 work 

deduction component from the effective date of the recalculation.

1120.40 When Excess Earnings Work Deductions Are Applied

1120.40.1 Employee

If the employee meets all the following criteria, excess earnings work deductions must 

be imposed:

A. The employee is an age and service annuitant under full retirement age as of the 

month work deductions would begin;

B. The employee has a work deduction insured status;

C. The work deduction components exceed $1.00; and

D. The employee's earnings or expected earnings are greater than the annual limit 

for the year.

1120.40.2 Spouse

If all the following criteria are met, excess earnings work deductions must be imposed 

on the spouse annuity:

A. The spouse is either receiving a vested dual benefit or is the spouse or the 

divorced spouse of an employee with a W/D insured status. The employee's age 

is immaterial.

B. The spouse is less than full retirement age if she has excess earnings. However, 

the spouse's age is immaterial if her work deduction components are being used 

to recover the employee's excess earnings; and

C. The spouse has excess earnings herself or the employee has a W/D insured 

status and has excess earnings.
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EXCEPTION: Beginning 1-1-85, the employee's earnings do not affect the 

annuity of a divorced spouse who has been divorced from the employee at least 

2 years.

1120.40.3 Order of Recovery

Work deductions based on the employee's excess earnings are applied on a monthly 

basis in the following order of priority:

A. From the employee's tier I W/D component;

B. From the employee's vested dual benefit;

C. From the portion of the spouse or divorced spouse tier I amount subject to 

deduction. If both a spouse and divorced spouse are receiving annuities, the 

excess amount is recovered in equal proportions from both annuities; and

D. From the spouse vested dual benefit, if a VDB is being paid.

Work deductions based on the spouse's or divorced spouse's excess earnings 

are applied only to that individual's own annuity.

1120.41 Field Office Action When Earnings Reports Received

When a report of excess earnings from a G-19L or other report is received from a 

retirement annuitant, notify Headquarters using SPEED. See FOM1 15125.

1120.45 Using MARC and PREH to Determine Work Deductions 

1120.45.1 Using MARC to Determine Work Deductions

The MARC (Microfiche of Annuity, Residual and Compensation) file (now on-line) 

should be used when an employee files for an annuity. It can also be used to advise the 

spouse if she files simultaneously with the employee, or before the employee's record 

shows on PREH.

A. "VESTING QC, RQ" - The number of QCs an employee needs for an insured 

status under the SS Act is found on the MARC in this item. This is also the 

number of QCs the employee needs for a W/D insured status.

B. "SSA QC" - This item shows the number of wage QCs the employee has 

acquired under the SS Act. If the employee is possibly insured based in part on 

pre-1951 social security earnings, "PI" is shown. To determine if the employee 

has a W/D insured status, you must also determine the number of the 

compensation QCs after 1974. The MARC no longer shows the number of 

railroad service months after 1974. You can make an accurate estimate by 

asking the employee about his railroad employment after 1974, or by checking 

the 1981 MARC II which does show the service months after 1974. If an older 
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MARC record is not available, you may request a Form G-90 (Certification of 

Service and Compensation) for a yearly breakdown of railroad compensation, if 

necessary.

If the employee has a W/D insured status based on the MARC information, the 

spouse has a W/D insured status.

C. "PIA 17" - PIA 17 is the amount of tier I that is not subject to excess earnings 

work deductions. It is the portion of tier I that is payable if the employee has 

excess earnings work deductions, because it is the portion of tier I that is based 

on railroad compensation before 1975.

To compute the amount that would be deducted from the employee's annuity 

because of excess earnings, use the following formula:

Tier I PIA 1

- PIA 17

Tier I W/D Component (PIA 2)

+ Vested Dual Benefit

Total W/D Components

When RBD computes the amount to be deducted for excess earnings, the 

reduction for age will be deducted. The tier I W/D amount computed by RBD 

may also differ from the amount shown on the MARC if additional earnings, 

delayed retirement credits or cost-of-living increases are added.

1120.45.2 Using PREH to Determine Work Deductions

The (Payment Rate and Entitlement History) system can be used to determine if excess 

earnings work deductions have been applied to an employee or spouse annuity.

Withholding for excess earnings work deductions is in force if the 3220 PREH record 

indicates withholding. The following fields on the 3220 record will display the work 

deductions being withheld:

• “WD-MO-ADJMNT-AMT”

• “T1-REG-WD-WH-AMT”
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• “VDB-WD-WH-AMT”

• “T2-LPS-WD-WH-AMT”

• “SUPP-ANN-LPS-WD-WH-AMT”

1120.50 Informing Annuitant Of Work Deduction Status

1120.50.1 Field Office

The first and most important notification of work deduction information an annuitant 

receives is in the field office. All applicants agree to report earnings over the exempt 

amount when the application certification page is signed. The importance of reporting 

excess earnings should be emphasized when the application is filed. Since most 

employees have now acquired a W/D insured status based on compensation alone (see 

FOM-I-1120.20.1), the importance of reporting earnings should be stressed for all 

applicants. If an employee has not yet acquired a work deduction insured status, advise 

him that he may acquire one if he works and earns additional QCs.

Effective 12-1-88, an employee or spouse no longer needs to stop work for a "last 

person service" (LPE) employer in order to qualify for an annuity. However, LPE 

earnings deductions apply to tier II and any supplemental annuity, up to a maximum of

50 percent of each component. The deduction will apply for any month that the 

annuitant has LPE earnings, regardless of the amount of those earnings or the 

annuitant's age.

The annuitant should understand that LPE earnings in excess of the annual exempt 

amount can also result in regular work deductions.

Use the information in FOM-I-1120.45 to answer inquiries about work deductions. All 

reports of excess earnings, LPE earnings, or changes in work status should be entered 

into SPEED unless otherwise requested.

1120.50.2 Award Notice Information

The monthly amount being withheld because of excess or LPE earnings is printed on 

the award letter. That amount is identified as "REDUCTION FOR EARNINGS," and is 

printed on Form RL-20e when the first check after the accrual check will reflect 

temporary work deductions. It is also printed in "rate break" form when the amount 

deducted in the ABD month differs from the amount to be deducted from regular 

monthly payments.

EXAMPLE l

Reduction For 

Earnings

Effective Date
FOM1 1120

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$ 255.78 09-27-2009

$418.50 10-01-2009

EXAMPLE 2

Reduction 

For 

Earnings

Effective 

Date

Supp 

Earnings 

Reduction

SUP 

Eff. 

Date

$663.00 5-3-10 $21.50 5-3-10

1120.50.3 Mass Mechanical Notification

The last mass mechanical notification of work deduction insured status was done in 

November 1977. There are no definite plans for another mass operation at this time.

Form letters RL-180 through RL-182 are used in that kind of operation to notify the 

employee and spouse if they have a W/D insured status and the amount of the W/D 

components.

1120.50.4 Work Deductions Award Letters

The following form letters are used to advise annuitants of work deduction adjustments 

to the annuity:

RL-119SR is used when an employee or spouse ceases LPE work and the reduction is 

being removed. The letter is generated through SPEED/ALTA and it is also available 

on RRAILS. 

RL-169SR is used to explain to a spouse annuitant that work deductions cannot be 

removed from the annuity because the employee is still working. This letter is

generated by SPEED and is also available on RRAILS.

Various code paragraphs also explain when work deductions are being applied and the 

effect of earnings on a retirement annuity.

1120.55 Excess Earnings Work Deductions In The ABD Month And 

Year 

For years before 1982, follow the instructions in FOM1, Article 11, Appendix C, “Form

G-101a Instructions,” for age and service work deductions.

The 1981 RR Act amendments changed the application of excess earnings work 

deductions in the month the annuity begins. No excess earnings work deductions will 
FOM1 1120

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be applied in the ABD month based solely on earnings before the ABD. This affects 

annuities that begin 1-1-82 or later.

If the employee had earnings after the ABD and work deductions apply in the ABD year, 

then all earnings in the ABD year (wages and railroad compensation) should be counted

for the annual earnings test. However, work deductions apply only to those months 

where the non-railroad earnings exceed the monthly exempt amount.

If the ABD is on the first day of the month and the annuitant has both excess earnings in 

the ABD year and earnings over the monthly exempt amount in the ABD month, then 

we would apply work deductions to the ABD month.

EXAMPLE: An employee’s ABD is 8-1-2009. Her earnings through August 2009 were 

$26,500.00. She continued to work through the end of 2009; however, her monthly 

earnings after August 2009 were under the monthly exempt amount for that year. ABD 

month work deductions would be applied for August 2009 since the ABD is on the first 

day of the month and the earnings in August were over the monthly exempt amount.

If the ABD is any day other than the first day of the month and the annuitant does not 

earn over the monthly exempt amount for the remainder of the ABD year, no work 

deductions apply in the ABD month. 

EXAMPLE: An employee last worked for her LPE employer on 8-23-2009. Her 

earnings through 8-23-2009 were $16,520.00. Her monthly earnings through August 

2009 were $2,065. She continued to work through the end of 2009; however, her 

monthly earnings after August 2009 were under the monthly exempt amount for that 

year. No work deductions will be applied for August 2009 because the ABD is not on 

the first day of the month and she had no earnings in excess of the monthly exempt 

amount after the ABD.

Apply regular ABD month work deductions according to the table below:

IF the ABD is 

on ...of the 

month

AND annuitant 

works after 

ABD

ARE there 

non-railroad

excess 

earnings in 

the ABD 

month?

ARE there 

excess 

earnings in at 

least one 

month after 

the ABD?

THEN, ABD 

year work 

deductions 

do...

The first No --- --- Not apply.

Yes Yes --- Apply.

Yes Yes Yes

Yes No Yes
FOM1 1120

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Other than the 

first

No --- --- Not apply.

Yes Yes Yes Apply.

Yes Yes No Not apply.

Yes No Yes Apply, but the 

ABD month 

would be a 

non-work 

month.

For ABD months before 1-1-82, work deductions were applied in the ABD month based 

on the employee’s earnings in that month, regardless of when they were earned. 

Therefore, the employee’s annuity was often reduced for railroad compensation that 

was earned before the annuity beginning date.

Do not apply Last Pre-retirement Non-railroad Employment (LPE) age and service work 

deductions in the year the annuity begins when the annuity beginning date (ABD) is 

other than the first day of the month and there are no LPE earnings after the ABD.

1120.60 Excess Earnings Work Deductions When The Annuitant Is 

Entitled To SS Benefits

Beginning 1-1-82, tier I work deductions are not applied for any month the annuity is 

reduced for SS benefits. However, the annuity is now reduced for the amount of the SS 

benefit before work deductions. The SS reduction is made whether or not the SS 

benefit is actually payable after work deductions. The vested dual benefit W/D 

component is still withheld for months that work deductions apply.

In these cases, the vested dual benefit is still subject to work deductions for excess 

earnings. Also, if the employee is the annuitant with the excess earnings and the social 

security benefit offset, the spouse’s tier 1 is still subject to withholding based on the 

employee’s earnings.

When applying final work deductions in these cases, take into consideration the amount 

of the social security benefits withheld from tier 1 during the year before applying work 

deductions to the employee’s VDB and the spouse’s tier 1.

Since RRB has no control over the amount withheld from the employee in these types 

of cases, the usual proration of monthly work deduction amounts (e.g., 2/3 from the EE 

and 1/3 from the spouse) cannot be used in this situation.

When assessing permanent work deductions for an employee who has an SS offset, 

the order of recovery should be made as follows:
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• The SS benefits payable for the year, then

• The employee’s VDB, and finally, 

• The spouse’s tier 1 if it is not subject to withholding for SS benefits.

EXAMPLE 1

An employee under full retirement age has excess earnings of 20,580.00 in 2010. He is 

entitled to social security benefits of $1007.00 for January 2010 through December 

2010. He is also entitled to a VDB in the amount of 117.07 which was previously 

withheld based on his earnings estimate.

The final retirement work deductions are computed as follows:

Excess Earnings $20,580

Minus Exempt Amount 14,160

 6,420 divided by 2 = 3,210

SSA Amount Available for Withholding 12,084

The amount to be withheld for excess earnings is $3,210.00. The SSA MBR indicates 

SSA withheld the SS benefit January through March and paid a partial for April. In other 

words, SSA was able to withhold the full amount subject to work deductions. (Note: 

Even if the MBR does not indicate that SSA has processed work deductions for the 

year, assume that they will be done at a later date.)

No tier 1 work deductions are needed on the spouse’s annuity and the VDB amounts 

previously withheld from the employee should be paid.

EXAMPLE 2

Same conditions as example 1, except the employee earned $40,000. The final work 

deductions would be completed as follows:

Excess Earnings $40,000

Minus Exempt Amount 14,160

 25,840/2 12,920

Minus SSA Amount Available for Withholding 12,084

Amount of Withholding Required by RRB 836
FOM1 1120

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836.00 divided by 117.07 = 7.14103 months withholding required for the VDB. 

The employee is entitled to a partial VDB for August and the full VDB for the 

remainder of the year.

No tier 1 work deductions are needed on the spouse’s annuity.

EXAMPLE 3

The employee has excess earnings and a tier 1 offset but is not entitled to a 

VDB. There is a spouse on the rolls with no SS offset. 

This section does not include any discussion on how to handle these situations if a 

divorced spouse is also subject to withholding based on the employee’s earnings. If 

you come across a case of this nature, please forward the folder or folderless package 

to Policy and Systems, attention: Teresa Givens. 

Note: When retirement work deductions imposed by both RRB and SSA creates a 

disadvantage to the beneficiary, see FOM1 1120.60.1.

1120.60.1 Effect of SS Entitlement

Since tier I will not be reduced for work deductions when there is an SS benefit, the SS 

benefit actually replaces the tier I W/D component. This change makes it easier for the 

RRB to apply work deductions, since it eliminates the need for adjusting tier I because 

of work deductions on both tier I and the SS benefit. It also eliminates the need to 

"restore" part of the SS benefit when it exceeds the tier I W/D component (see FOM-1-

1120.60.2).

Entitlement to SS benefits may be a disadvantage when the SS rate is greater than the 

tier I W/D component. However, whether or not SS entitlement is a disadvantage 

depends on the amount of the annuitant's earnings and whether or not he has a vested 

dual benefit. When the SS rate is larger than the tier I W/D component, the reduction in 

tier I for earnings is greater. For example, if the employee's SS benefit is $1200.00, but 

his tier I W/D component is $500.00, he will have a greater reduction in tier I if he is 

entitled to SS benefits.

Similarly, SS entitlement may be an advantage when the SS rate is less than the tier I 

W/D component. Whether or not it is an advantage also depends on the amount of the 

earnings and VDB entitlement. These are factors because they determine if the SS 

benefit or tier I W/D component are the only amounts that will be affected, or if W/D 

would also be applied to the vested dual benefit.

The following chart summarizes the effect of SS entitlement on work deductions. This 

chart is based on equal periods of SS entitlement and annuity entitlement (i.e., 12 

months for both). This chart should be used to provide guidelines in advising an 

employee. Based on the individual factors involved (e.g., SS beginning date or earnings 

fluctuation), a decision may depend on your calculations in an individual case.
FOM1 1120

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AMOUNT OF SS BENEFIT

EFFECT OF SS 

ENTITLEMENT

GREATER THAN TIER I W/D 

COMPONENT

LESS THAN TIER I W/D 

COMPONENT

Disadvantage If there is a VDB If there is a VDB and the 

excess earnings amount to 

OR be withheld is less than 

the total of the SS benefit 

and the VDB for the year

If there is no VDB AND the 

excess earnings amount to be 

withheld is greater than the 

total of the tier I W/D 

components for the year

Advantage None If there is no VDB and the 

excess earnings amount to 

be withheld is greater than 

the total of the SS benefits 

for the year

OR

If there is a VDB and the amount to be withheld is greater 

than the total of the SS benefit and the VDB for the year

No disadvantage 

or advantage

If there is no VDB the excess earnings amount to be withheld 

is less than or equal to the total of the tier I W/D components 

for the year

AND

If there is no VDB and the amount to be withheld is less than 

or equal to the total SS benefits for the year.

EXAMPLE 1: SS Is Greater Than Tier I W/D Component, Employee Has a VDB The 

employee earned $13,440.00 in 1982, which caused excess earnings of $4,500.00 

($13,440.00 - 4,440.00 -: 2 = 4,500.00).

His 1-1-82 rates were:

Without SS With SS SS Benefit
FOM1 1120

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Tier I: $ 626.00 626.00 $ 164.00

SS: -164.00

462.00

Tier 2: + 343.88 + 343.88

VDB : + 172.49 + 172.49

1142.37 978.37 $ 164.00

x 12 mos. x 12 mos. x 12 mos.

$ 13708.44 $ 11740.44 $ 1968.00

The work deduction components were:

Tier 1: $ 52.60 $ 172.49

VDB: + 172.49 x 12 mos.

x 12 mos. $ 2069.88

$ 2701.08

Although the amount to be withheld was $4,500.00, the annuity could not be reduced for 

more than the total W/D components. The amounts payable after work deductions 

were:

13708.44 $11740.44 $ 1968.00

- 2701.08 - 2069.88 - 4500.00

$11007.3

6

$ 9670.56 $ 0.00

SS entitlement in this case was to the employee's disadvantage, because the total 

benefits payable were $1,336.80 less (the difference between the SS benefit and the 

tier I W/D component times 12 months).

EXAMPLE 2: SS Is Less Than Tier I W/D Component, Excess Earnings Withholding Is 

Greater Than Total Tier I and VDB W/D Components - The employee earned 
FOM1 1120

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$15,440.00 in 1982, which caused excess earnings of $5,500.00 ($15,440.00 - 4,440.00 

- 2 = 5,500.00).

His 1-1-82 rates were:

Without SS With SS SS Benefit

Tier I: $ 503.00 $ 503.00 $ 250.70

SS: - 250.70

$ 252.30

Tier II: + 75.62 + 75.62

VDB: + 129.13 + 129.13

707.75 $ 457.05 250.70

x 12 months x 12 months x 12 months

$ 8493.00 $ 5484.60 $ 3008.40

The work deduction components were:

Tier I: $ 294.80 $ 129.13

VDB: 129.13 x 12 months

423.93 $ 1549.56

x 12 months

$ 5087.16

Although the amount to be withheld was $5,500.00, the annuity could not be reduced for 

more than the total W/D components. The amounts payable after excess earnings work 

deductions were:

$ 8493.00 $ 5484.60 $ 3008.40

- 5087.16 - 1549.56 - 5500.00
FOM1 1120

FOM1 1120 Retirement Annuity Work Deductions Revised Apr 5, 2017 Page 23 of 32

$ 3405.84 $ 3935.04 + $ 0.00

The benefits payable with SS entitlement ($3,935.04) exceeded the amount that would 

be payable if the employee were not entitled to SS benefits ($3405.84). The difference 

($529.20) equals the difference between the tier I W/D component minus the SS 

benefit, times 12 months. SS entitlement was to the employee's advantage in this case 

as long as the earnings withholding exceeded $4,557.96 ($3,008.40/SS and 

$1,549.56/VDB).

1120.60.2 Work Deductions Prior to 1982

The 1981 RR Act amendments changed the computation of work deductions when SS 

benefits are involved. Before 1-1-82, tier I work deductions applied even when the 

annuitant was receiving SS benefits. However, the reduction in tier I for SS benefits 

was the net SS benefit after SSA had applied work deductions. The RR annuity, 

therefore, was reduced only for the amount of the SS benefit that was actually paid.

Instead of changing the reduction in tier I every time the SS benefit rate changed 

because of work deductions, a simplified method was used. When temporary W/Ds 

were applied, the full amount of the SS benefit was used to reduce tier I. In almost 

every case, the amount of the SS benefit exceeded the work deduction components 

that would have to be withheld otherwise. Since this method actually resulted in 

reducing the annuity for an amount greater than the W/D components, there was 

generally no overpayment as long as the annuity had an SS reduction for each month 

that W/Ds would apply. When permanent W/Ds were computed, the RR Act W/D 

components were deducted from the benefits payable after the correct SS reduction 

was made.

EXAMPLE 1: The employee was entitled to SS benefits of $254.30 effective 1-1-80, 

and $290.70 effective 6-1-80. The employee expected to have earnings of $5,120.00 in 

1980. Since the exempt amount was $3,720.00, his excess earnings were $700.00.

The employee had a W/D insured status; his W/D components were:

1/80 6/80

Tier I W/D Component $ 58.00 $ 66.30

VDB 172.68 172.68

Total $ 230.68 $ 238.98

When temporary W/Ds were assessed, only the SS reduction was made in tier I. When 

permanent work deductions were computed, the following adjustment was made:
FOM1 1120

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Total SS (gross) deducted from tier I: $ 3306.40

Total SS after work deductions: - 2606.40

Tier I accrual: $ 700.00

W/D recovered from W/D components: - 700.00

Overpayment: 0.00

There were some cases in which the amount of the SS benefit greatly exceeded the 

amount of the work deduction components. When that happened, the reduction for SS 

would exceed the amount that should be deducted from the railroad annuity because of 

earnings. In those cases, temporary W/Ds were assessed with a "restoration" in tier I 

equal to the difference between the amount of the SS benefit and the work deduction 

components. In other words, only the work deduction components would be deducted 

from the annuity. The restored amount could only apply in months that the SS benefit 

would not be paid because of earnings.

EXAMPLE 2: The spouse's SS benefit was $250.00. Her tier I W/D component was 

$10.00. Her excess earnings to be withheld totaled $650.00. Since the maximum 

amount to be withheld from her annuity is twelve times her W/D component, or $120.00, 

it would be unjust to reduce her annuity for the gross amount of her SS benefit. 

Accordingly, we "restored" her SS benefit less $10.00 ($240.00) for the months that her 

SS benefit was not payable because of earnings. The monthly reduction for earnings, 

therefore, equaled her W/D component of $10.00.

If the annuitant did not have a W/D insured status, but did have an SS benefit that had 

work deductions, the full amount of the SS benefit was restored in the months the SS 

benefit was payable after work deductions. In other words, the annuity was reduced 

only for the amount of the SS benefit that was payable after work deductions.

1120.65 Assessment Of Temporary W/D's For Excess Earnings

Work deductions are assessed on a "temporary" basis during the current year. The 

work deductions are temporary because the withholding is based on an estimate of 

earnings. The withholding is intended as an offset to prevent or reduce an overpayment 

when the final adjustment is made. Temporary work deductions for excess earnings are 

required whenever an annuitant under full retirement age expects to have earnings over 

the annual limit.
FOM1 1120

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1120.65.1 When Initial Temporary W/Ds Are Applied

A. ROC or PC awards - For cases paid through ROC or PC awards, the offset is 

based on the excess earnings divided by 12, or the number of months available 

for withholding. ROC automatically adds a 10 percent cushion to the amount of 

earnings being used for the estimate. See example 1.

If the basis for the withholding is less than the total work deduction components, 

it should be prorated between the employee and spouse annuities. Two-thirds or 

.66667 will be withheld from the employee's and one-third, .33333, from the 

spouse's annuity, if applicable. Round up the prorated amounts for both the 

employee and spouse to the dollar. See example 1 below. (NOTE: THESE 

ARE EXAMINER CALCULATIONS ONLY. ROC WILL PRORATE USING THE 

RATIO OF THE ANNUITANT’S WD COMPONENTS TO THE TOTAL OF ALL 

WD COMPONENTS.)

Example 1: An employee under FRA is entitled to an annuity beginning January 

1, 1999. He has indicated that he will earn $17,300.00 in 1999. His temporary 

work deduction withholding will be based on $19,030.00 ($17,300.00 times 10%). 

His tier 1 work deduction component is $310.00 and his VDB is 169.40, for a total 

of $479.40 (maximum work deduction component).

Based on the employee's estimate, we need to recover $4,715.00 ($19,030.00 -

9,600.00=$9,430/2=$4,715.00). The calculated TWD based on 12 months 

withholding is $392.92 per month (4,715.00/12=$392.91666). The prorated 

withholding for the employee is $262.00 ($392.92 x .66667 = $261.95) and 

$131.00 for the spouse ($392.92 x .33333 = $130.97).

NOTE: IF THIS SAME CASE IS PAID THROUGH RASI, THE WITHHOLDING 

WOULD BE BASED ON THE MAXIMUM WORK DEDUCTION COMPONENT, 

$479.40, INSTEAD OF THE 12-MONTHS WITHHOLDING. 

Example 2: An employee under FRA entitled to an annuity beginning 9-1-98. On 

March 1, 1999, he reports that he will earn $18,000.00 in 1999. His tier 1 work 

deduction component is 250.00 and the VDB is S101.80. His spouse's tier 1 work 

deduction component is $125.00, for a total maximum family work deduction 

component of $476.80 component.

Based on the employee's estimate, we would use $19,800 to compute the 

temporary work deductions. We need to withhold $5,100.00 ($19,800.00 -

9,600.00=$10,200.00/2= $5,100.00). The calculated TWD based on the number 

of months available for withholding is $510.00 ($5,100.00/ 10 months). Since the 

withholding based on the available months is higher than the maximum work 

deduction component, withhold the maximum work deduction components for the 

remainder of the year.
FOM1 1120

FOM1 1120 Retirement Annuity Work Deductions Revised Apr 5, 2017 Page 26 of 32

Temporary work deductions should be used for excess earnings in the current 

year. They may also be used if it is not possible to make final adjustment for 

earnings at the time the annuity is being certified. 

B. RASI Awards

Excess earnings work deductions must be applied to a partial annuity rate when 

the field office computes an IMPACT or SPAR rate. RASI (Retirement 

Adjudication System Initial) applies temporary W/Ds to the employee or spouse 

final annuity when the employee or spouse has a W/D insured status and the 

application indicates excess earnings after the ABD. RASI also will apply 

temporary W/Ds to the spouse final annuity when the employee and spouse filed 

simultaneously and the employee estimates excess earnings after the ABD. If 

the spouse filed after the employee annuity was awarded, RASI will apply 

temporary W/Ds to the spouse if the employee's tier I W/D component is included 

in internal research records. Otherwise, work deductions will be applied to the 

spouse with a manual award.

RASI does not apply tier I work deductions when a social security benefit has 

been deducted from tier I (see FOM-I-l120.60). However, the vested dual benefit 

will continue to be withheld.

Beginning 1-1-82, work deductions will not be applied in the ABD month based 

on excess earnings before the ABD. However, if earnings are indicated for 

months after the ABD month, temporary W/Ds will be applied for each month in 

the year. RASI does not identify months in which earnings do not exceed the 

monthly exempt amount if there are any months of excess earnings after the 

ABD month. Work deductions are then applied in every month.

C. RASI EDP Review

During EDP review of the RASI awards, the goal is to identify awards where the 

RASI temporary work deductions are incorrect and to correct them using the 

following instructions. 

If the correct temporary monthly work deduction amount is less than the amount 

being deducted (we are over deducting).
FOM1 1120

FOM1 1120 Retirement Annuity Work Deductions Revised Apr 5, 2017 Page 27 of 32

IF THEN

The difference is $10.00 or less.... • DO NOT ADJUST TWD, and

• Notate on the RASI award 

“temporary work deduction amount 

should be $XXX.XX, NAN, within 

$10.00.” 

The difference is more than $10.00.... • Adjust the TWD retroactive from 

the month they were calculated in 

error.

If the correct temporary monthly work deduction amount is more than the amount being 

deducted (we are under deducting). 

IF THEN

The difference is $1.00 or less.... • DO NOT ADJUST TWD, and

• Notate on the RASI award 

“temporary work deduction amount 

should be $XXX.XX, NAN, within 

$1.00.” 

The difference is more than $1.00.... • Adjust TWD from the current 

month (zero accrual award) to 

correct the temporary withholding 

amount.

1120.65.2 Cases in Pay Status

When an annuitant in pay status reports expected earnings over the exempt amount 

after the ABD, temporary W/Ds are applied effective with the current month. Temporary 

W/Ds are rarely applied retroactively.
FOM1 1120

FOM1 1120 Retirement Annuity Work Deductions Revised Apr 5, 2017 Page 28 of 32

Due process rules do not require 30 days advance notice when applying or increasing 

temporary work deductions.

1120.65.3 When to Adjust Temporary Work Deductions for Upward Earnings 

Estimates and TWD Corrections

If the annuitant reports an increase in the amount of expected excess earnings or Last 

Pre-retirement non-railroad Employment (LPE) earnings after his ABD; or, if notification 

is received from SSA that indicates the annuitant will have an increase in expected 

excess earnings, adjust the withholding as needed.

If the amount of TWD's for the annuity in pay status is incorrect, and we have already 

withheld the estimated excess earnings amount, remove the tier 1/VDB TWD from the 

current month. If the annuitant is still working, set a tickler call-up for January 1st of the 

following year to re-enter the TWD. The TWD will be based on the previous year's 

estimate plus 10 percent.

Example: An employee under full retirement age has had a $675.00 TWD withheld 

since January 1, 2009. In June, he sends in a revised estimate of $20,000.00 for 2009. 

The case is being handled on a July voucher.

Based on the new estimate, we would calculate TWDs based on $22,000.00

($20,000.00 times 10% = $22,000.00. We need to withhold $3,920.00 ($22,000 -

14,160.00= $7,840.00/2 =$3,920.00.) Since we have already withheld $4050.00 

through June 2009, remove the TWDs from the current month and set a tickler call-up 

for January 1st to enter the TWD for the year 2010. DO NOT RELEASE AN ACCRUAL. 

The year 2010 estimate of earnings will be $24,200.00 ($22,000 times 10%) unless 

notified otherwise.

If you receive a revised upward estimate during the year and we have not fully withheld 

the estimated excess earnings amount, determine the remaining amount of withholding 

that is needed and adjust the TWD from the current month.

Example: An employee sends in a revised estimate of $22,500 .00 for 2010. Calculate 

TWDs based on $24,750.00 ($22,500 times 10%). We have been withholding $580.00 

(the maximum WD component) per month from the employee since March 2010. The 

case is being handled on a July voucher.

Based on the employee's revised estimate, we need to withhold a total of $5,295.00 for 

2010 estimated earnings ($24,750.00 – 14,160.00 = $10,590.00/2 $5,295.00. 

$2,320.00 has already been withheld through June 2010, therefore we need to withhold 

an additional $2,975.00. Using the remaining months available in the year, we would 

adjust the TWD withholding amount from $580.00 (the maximum WD component) to 

$496.00 ($2,975.00/6mos. = $496.00).
FOM1 1120

FOM1 1120 Retirement Annuity Work Deductions Revised Apr 5, 2017 Page 29 of 32

Use a "zero accrual" recert as described in RCM Part 8 award form instructions to apply 

or adjust TWD's. The rules of due process do not require 30 days advance notice 

when applying TWD's.

1120.65.4 When to Adjust Temporary Work Deductions for Downward Earnings 

Estimate

If you receive a revised downward earnings estimate during the year and the new 

estimate of earnings is less than the yearly exempt amount established for the 

annuitant’s age, remove the tier 1/VDB work deductions from the earliest month 

withheld in the year.

Example: An employee under full retirement age has had a $350.00 TWD withheld 

since January 2010 based on his original estimate of earnings of $30,000. In May 

2010, the employee informs us that due to cutbacks at his company, he will only earn 

$14,000for the year 2010. Since $14,000 is less than the yearly exempt amount for 

2010 for annuitants under full retirement age, the TWDs will be removed from January 

2010. (NOTE: If the earnings are from the last pre-retirement employer, LPE work 

deductions would continue to apply).

If you receive a revised downward earnings estimate during the year and we have 

already fully withheld the estimated earnings, remove the tier 1/VDB TWD from the 

current month. If the annuitant is still working, set a tickler call-up for January 1st of the 

following year to re-enter the TWD. The TWD will be based on the previous year's 

estimate plus 10%.

Example: An employee under age full retirement age sends is a revised estimate of 

$18,200.00. He is still working but has reduced his hours. We have been withholding 

$380.00 from his annuity since January 1, 2010. Calculate the TWD using $20,020.00 

($18,200.00 times 10%). The adjustment in this case is being handled in September 

2010.

Based on the employee's revised estimate, we need to withhold $2,930.00 ($20,020.00 

– 14,160.00/2 $$2,930.00). Since we have already recovered $3040.00, remove the 

TWD from the current month and set a tickler call-up for January 1, 2011 to re-enter the 

TWD. NO ACCRUAL IS RELEASED IN THIS SITUATION. The year 2011 estimate will 

be $22,022.00 unless notified otherwise.

If you receive a revised downward earnings estimate during the year and we have not 

fully withheld the estimated earnings, adjust the TWD based on the lesser of the 

maximum work deduction component, or the excess earnings divided by 12 or the 

number of months available. IN THIS INSTANCE, THE ACCRUAL WILL BE PAID. 

ADJUST THE TWD FROM THE LATER OF JANUARY OR THE ABD. 

Example: An employee under age full retirement age has advised us that his estimate 

of earnings for 2010 has been decreased to $16,000. We have been withholding 

$180.00 from his annuity and $60.00 from his spouse's annuity since January 1, 2010, 
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based on his previous estimate of $24,000.00. Calculate the new TWD withholding 

amount using $17,600.00 as the estimate. The case will be on a June voucher.

Based on the employee's revised estimate, we need to recover $2,820.00 ($17,600 –

14,160.00 = $3,440.00/2 = $1,720.00.. The calculated TWD based on the 12-month 

withholding is $144.00. Since the 12-month withholding is less than the maximum work 

deduction component, recertify both the employee and spouse annuity from January 1.

When prorated, we would adjust the TWD from January 1, 2010 to withhold $96.00 from 

the employee and $48.00 from the spouse.

1120.65.5 Removing Work Deduction Components

A temporary work deduction may be removed from the annuity, and the full annuity rate 

paid, if:

A. The annuitant attains full retirement age - The work deductions are removed 

effective with the month the annuitant attains full retirement age. However, if 

there were months earlier in the year that W/D should have been applied but 

were not, the work deductions will be removed effective with the current month. 

When the examiner adjusts the case to remove the tier 1/VDB work deductions, 

they will include ALTA code paragraph 414.10 in the award letter. That 

paragraph advises the annuitant to contact the field office and provide a monthly 

breakdown of earnings for the months prior to the attainment month. Once the 

annuitant contacts the field, the earnings breakdown should be submitted via 

SPEED.

B. The annuitant's wages will not exceed the monthly exempt amount, the annuitant 

will not perform substantial services in SE, AND the monthly earnings test 

applies - Work deductions are removed beginning the month the exempt amount

is not exceeded unless it is December, because work deductions may apply in 

the following year. However, if there were months earlier in the year that W/Ds 

should have been applied but were not, the work deductions will be removed 

effective with the current month.

C. The annuitant's earnings will not exceed the annual exempt amount - Any work 

deductions withheld in the year will be refunded; or

D. The annuitant's estimate of earnings decreases, and sufficient work deduction 

components have already been deducted to offset the withholding for excess 

earnings - The work deductions generally will be removed effective with the 

current month, unless it is December, because work deductions may apply in the 

following year.

1120.70 Permanent Work Deductions For Excess Earnings

Permanent work deductions are normally determined after the end of the year, on the 

basis of an annuitant's annual report of earnings. Permanent work deductions are also 
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required when an annuity terminates and the annuitant had excess earnings in the year 

of termination. Beginning March 19, 2011, permanent work deductions can also be 

determined when a cease work report is filed. SPEED calculates permanent work 

deductions based on cease work reports so any cease-work report entered into SPEED

that results in a USTAR referral should also be processed as permanent work 

deductions. Permanent work deductions are computed by determining the amount of 

annuities to be withheld based on the actual earnings, and deducting the amount of 

annuities temporarily withheld based on estimated earnings. The amount withheld 

cannot exceed the total of the annuitant's work deduction components for the year. If 

an overpayment results, the overpayment will be recovered from the annuity. An 

actuarial adjustment will not be used to recover an overpayment due to excess earnings 

if it is probable that the annuitant will have excess earnings in the future. FOM-I1105.95 explains when partial withholding or actuarial adjustment may be offered.

If an accrual results when permanent work deductions are calculated, the accrual will be 

paid unless there is an outstanding overpayment. An accrual for a previous year will not 

be withheld because of excess earnings in the current year.

An employee's excess earnings in or after the ABD year may be high enough to result in 

the recomputation of the tier I PIA. The evidence required is described in FOM-I230.151.

EXAMPLE: The employee earned $44,112.00 in 2010 which caused excess earnings 

of $14,976.00 ($44,112.00 - $14,160.00 = $29,952.00/2 = $14,976.00). The 

employee's tier I increased 1-1-10 because 2009 wages were included and caused a 

recomputation. The tier I increase reduced the overpayment. It also caused an 

increase in the amount of the tier I W/D component effective 1-1-10.

The annuity rates she was paid in 2010 were:

1/2010 – 12/2010 

Tier I $ 248.55

Tier II 65.41

$ 313.96

The total annuities paid to the employee in 2010 were $3,767.52. The annuity rates she 

should have been paid are:
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1/2010 – 12/2010

Tier I $ 248.33

Tier II 65.41

$ 313.74

Follow the instructions in Appendix F of this chapter when applying final work 

deductions.

Form G-101a, "Worksheet For Work Deduction in Retirement Cases (Pre-1981 

Amendment)"

Form G-101b, "Worksheet - Calculating Age Reduction in Retirement Work Deduction 

Cases"

Form G-101F, "Worksheet - Work Deductions in Retirement Cases For Excess 

Earnings in 1982 or Later"

Form G-101L, "Worksheet For LPE Work Deductions"