NLRB's Acting General Counsel Rolls Out Plan to Adjust Backpay Awards for Excess Income Taxes and Reports to the Social Security Administration | Practical Law

NLRB's Acting General Counsel Rolls Out Plan to Adjust Backpay Awards for Excess Income Taxes and Reports to the Social Security Administration | Practical Law

The National Labor Relations Board's (NLRB) Acting General Counsel announced procedures for the reimbursement of excess income taxes paid because of lump-sum backpay awards and the reporting of backpay allocation to the Social Security Administration. The memorandum implements the new procedures required as a result of the NLRB's decision in Latino Express, Inc.

NLRB's Acting General Counsel Rolls Out Plan to Adjust Backpay Awards for Excess Income Taxes and Reports to the Social Security Administration

by PLC Labor & Employment
Published on 16 Feb 2013 • USA (National/Federal)
The National Labor Relations Board's (NLRB) Acting General Counsel announced procedures for the reimbursement of excess income taxes paid because of lump-sum backpay awards and the reporting of backpay allocation to the Social Security Administration. The memorandum implements the new procedures required as a result of the NLRB's decision in Latino Express, Inc.
On February 15, 2013, the NLRB's Acting General Counsel issued a memorandum to NLRB personnel regarding the reimbursement of excess income taxes paid and the reporting of backpay allocation to the Social Security Administration (SSA). In its December 18, 2012 decision in Latino Express, Inc., a three-member panel heading the NLRB's judicial functions (Board) held that the NLRB now requires respondents that owe backpay to:
  • Reimburse backpay recipients for any excess income taxes they may owe because their backpay award was paid as a lump sum rather than allocated to the year in which the income would have been earned if the respondent had not violated the NLRA.
  • Report backpay awards to the SSA so they are allocated to the year in which the income would have been earned rather than recorded as a lump sum taxed in the year in which they are received.
For more information on the Latino Express, Inc. decision, see Legal Update, NLRB Adopts Expanded Remedies for Backpay Awards.
To implement the reimbursement for excess tax liability remedy, the NLRB has developed a program in Microsoft Excel to quickly calculate the amount of federal and state income taxes a discriminatee would be required to pay if he received backpay in a lump sum versus the amount of tax he would have paid had he received the backpay in the appropriate years. The program assumes:
  • The excess tax liability remedy applies to both backpay and interest paid in a lump sum.
  • The discriminatee correctly filed his tax returns for the appropriate years during the backpay period by claiming the correct number of dependents and exemptions.
  • The filing status that the discriminatee will use in the year the backpay is paid is the discriminatee's actual filing status in that year.
  • The amounts of federal and state income tax owed are what the discriminatee would have been required to pay in each respective year if the wages had been earned in that year.
  • All taxes owed on the excess tax will also be included in the backpay.
All complaints issued before December 18, 2012 in which backpay may be owed should have pled the request for reimbursement for excess tax liability, and the NLRB recommends that Regions continue to plead the excess tax liability in all complaints. The NLRB has made available a form, Draft Excess Tax Liability Language for Compliance Specification, to be included in future compliance specifications.
In addition, the NLRB has made available a standard form, Report of Backpay Paid Under the National Labor Relations Act, to elicit information required by the SSA. As with the excess tax liability remedy, the Board will apply the SSA remedy retroactively.
The NLRB is training its personnel on the new program that calculates the excess tax liability.