Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 77-100

1977-1 C.B. 309

Section 3121 -- Social Security Definitions
Section 3231 -- Railroad Retirement Definitions

IRS Headnote

RRTA; compensation; settlement of violation of reemployment rights. An amount received in settlement of a judgment for violation of an employee's reemployment rights after military service is compensation subject to the RRTA to the extent and at the rate of tax applicable at the time it is received unless the employee elects, under section 3231(e)(2) of the Code, to have the amounts deemed paid in the months to which they are attributable.

Full Text

Rev. Rul. 77-100

Advice has been requested whether an amount received in settlement of a judgment for violation of an employee's rights to reemployment following military service should be treated as compensation under section 3231(e)(2) of the Railroad Retirement Tax Act (chapter 22, subtitle C, Internal Revenue Code of 1954).

Section 3231(e)(1) of the RRTA defines the term compensation as any form of money remuneration paid to an individual for services rendered as an employee to one or more employers.

Section 3231(e)(2) of the RRTA provides that an employee shall be deemed to be paid compensation in a period during which such compensation is earned only upon written request by such employee, made within six months following the payment, and a showing that such compensation was earned during a period other than the period in which it was paid.

Section 31.3231(e)-1(b) of the RRTA Regulations states, in part, that the following items are included in the term "compensation":

(1) back pay upon reinstatement after wrongful discharge, and

(2) amounts paid to an employee for loss of earnings during an identifiable period as the result of the displacement of the employee to a less remunerative position or occupation.

For purposes of section 3231(e)(2) of the Act, an amount received in settlement of a judgment for violation of the employee-recipient's rights to reemployment following military service is similar to an amount paid for back pay upon reinstatement after wrongful discharge and an amount paid for loss of earnings resulting from the employee's displacement to a less remunerative position or occupation.

Accordingly, an amount received in settlement of a judgment for violation of the employee's rights to reemployment following military service is compensation for purposes of section 3231(e)(2) of the RRTA, and such amount is subject to RRTA tax to the extent, and at the rate of tax in accordance with the law applicable at the time that the amount is received, unless the employee elects, within six months of the settlement, to have the amount deemed paid in the months to which it is attributable. See Rev. Rul. 75-565, 1975-2 C.B. 410, which holds that lump-sum back pay is subject to taxes imposed by the RRTA to the extent, and at the rate of tax in accordance with the law at the time that the compensation is actually paid, unless the employee requests under section 3231(e)(2) of the Act that these determinations be made on the basis of when the compensation was actually earned.