Two Things You Should Know About MTA Payroll Taxing Retroactive Pay
1-If you defer any amount of your retroactive pay you will still pay:
Social Security tax 6.2%+ Medicare tax 1.45%=7.65% in taxes on the deferred portion of your retroactive pay.
If you designate the entire amount of the retroactive, your regular take home pay will be reduced by the 7.65% in taxes owed on the retroactive portion.
Example:
Entire Retroactive = $5000
FICA taxes = X 7.65%
Amount owed = $382.50
If you designate the entire amount the authority is going to defer the entire amount not taking into account the FICA taxes owed on the designation. From this example your take home pay will be reduced by the approximate $382.50 that is owed on the retroactive amount.
2- Q-Why is the Federal Tax on my Retro Check 22%.
A-The Internal Revenue Service defines retroactive pay increases in Circular E as supplemental wages (IRS Circular E 2023).
Regular wages are normal wages paid on a paycheck-by-paycheck periodic basis during normal pay periods.
Supplemental wages classification includes but are not limited to such payments as for accumulated sick leave, severance pay, back pay, awards, and retroactive pay. This is an IRS stipulation versus an MTA rule.
