Back Pay isn’t something that is often discussed because a lot of federal employees don’t even know that it is a part of Federal Disability Retirement, but it is actually a very beneficial component that can greatly impact your financial future.
What is Back Pay?
So, before we get into the benefits of Back Pay, let’s talk about what it is and how you qualify for it. Simply put, Back Pay is a lump sum payment that is only subject to federal taxes and is awarded to federal employees as a way to compensate them for any wages lost due to their medical condition. Now keep in mind that this lump sum payment isn’t included in your regular Federal Disability Retirement annuity but it is an addition that is paid out separately before you receive your monthly annuity payments.
But how much will you get paid? Well, the amount of Back Pay you can receive will be based on the amount of time that you were out of work. This time is based on your last date of pay. It’s important to know that your Back Pay will be paid out at your Federal Disability Retirement annuity rate instead of your regular pay rate. For example, if your monthly annuity is $4,000 and you were out of work for 8 months, then your estimated Back Pay would be $32,000.
As you can see, this extra lump sum payment can be extremely beneficial to federal employees that have been struggling to keep up with their finances while out of work. This is where we see many clients that have accrued multiple medical and credit bills use their Back Pay to pay off what they owe without having to wait for their annuity payment. They take full use of this component of their Federal Disability Retirement and maximize the impact that it can have on their financial future.
What could impact your benefit?
But there are some outside factors that could impact how you maximize your benefit. Earlier we talked about what Back Pay is and how it is based on your last date of pay, but it is important to note that your last date in pay could be affected by any income that you receive from your agency. Income that could impact your back pay includes but is not limited to holiday pay, bonuses, and training compensation*. So, if you have been out of work but then receive ANY income from your agency then that will reset your last date in pay status which means that you could lose out on thousands of dollars, depending on how long you were out of work.
This is why it is particularly important to pay close attention to any income that you receive from your agency because you do not want to jeopardize your Back Pay and lose out on the money you deserve.
*If you are a federal employee that works for the USPS (United States Postal Service) and are currently in process of filing your federal disability retirement claim it is important that you do not attend any of their suggested counseling and or training sessions because you will be paid for this time and that will reset your last date in pay status.
Other factors that could impact how much Back Pay you can receive are other federal benefits that you could possibly be receiving such as Social Security Disability Insurance or OWCP Federal Workers’ Compensation. If you are receiving either of these benefits, they could in turn minimize the amount of back pay that you could receive from your Federal Disability Retirement. This is why we always recommend that you speak to an experienced professional that understands your federal benefits and knows how to use these interactions to maximize your benefit payments.
Along with keeping an eye out for benefit interactions, you need to remember to pay close attention to how much you receive in Back Pay, because at times, the Office of Personnel Management (OPM) can overpay you due to a miscalculation. It is especially important that you catch this overpayment mistake before you use any of the Back Pay that was given to you because you are legally obligated to give the overpayment amount back to the OPM. In the case where you did not notice an overpayment and have already used the money, then you have three re-payment options. You can choose to pay back the entire amount owed at once by mailing a check to the OPM, set-up a payment plan where you make payments to the OPM every month or you can request for the OPM to deduct money from your annuity payments every month until the amount owed is paid off. This is where we recommend that you talk to your financial advisor to see which option is best suitable for your current financial situation and avoid undue stress.
As you can see, Federal Disability Retirement Back Pay is a confusing yet helpful benefit that many federal employees are not familiar with when applying for Federal Disability Retirement. It is important to plan ahead in order to create a more secure financial future and maximize your benefits.
If you have more questions regarding Federal Disability Retirement or Back Pay then contact us today to schedule a FREE consultation! Also, don’t forget to check out our other resources to learn more about your federal benefits.