Retroactive raises
How retro pay works in 2026
Retro pay — short for retroactive pay — is the difference between what you were paid and what you should have been paid after a raise is approved with a backdated effective date. It commonly appears when a union contract is ratified months after the old contract expired, when an annual merit increase is processed late, or when a payroll error is corrected.
The retro pay formula
The math is straightforward: (New rate - Old rate) x Hours worked during the retro period = Gross retro pay. For a salaried employee, convert the annual salary difference to an hourly or per-period figure first. If your salary rose from $65,000 to $68,000 and the raise was backdated three biweekly pay periods, the gross retro owed is ($68,000 - $65,000) / 26 periods x 3 periods = $346.15.
| Old hourly | New hourly | 4 biweekly periods retro |
|---|---|---|
| $18.00 | $19.50 | $480 |
| $22.00 | $24.00 | $640 |
| $30.00 | $32.00 | $640 |
| $40.00 | $43.00 | $960 |
Gross retro pay for 4 biweekly periods (80 hours each, 320 total hours). Taxes reduce the net check.
Hourly vs. salaried retro pay
For hourly workers, the calculation is direct: multiply the hourly raise by each hour worked during the retro window, including any overtime hours at the overtime premium. For salaried employees, divide the annual salary difference by the number of pay periods per year (26 for biweekly, 24 for semi-monthly) and multiply by the number of periods being backdated.
Overtime during the retro period
If you worked overtime during the retroactive window, the raise applies to those hours at the overtime multiplier too. A $2/hour raise on 10 overtime hours at time-and-a-half means $2 x 1.5 x 10 = $30 in additional retro pay on top of the regular-hours retro amount. Many payroll systems handle this automatically, but it is worth verifying on your retro-pay stub.
Tax withholding on retro pay
Because retro pay arrives as a lump sum separate from a regular paycheck, employers use the IRS flat 22% supplemental withholding rate (37% on the portion above $1 million). Social Security tax (6.2%) applies up to the 2026 wage base of $184,500 (SSA), and Medicare (1.45%) applies with no cap. If the lump sum pushes your year-to-date earnings past $200,000 (single), the 0.9% Additional Medicare Tax also kicks in.
If the flat 22% overwithholds relative to your actual marginal bracket, you will receive the excess back as a refund when you file your 2026 return.
Convert retro pay to your take-home
This calculator estimates the after-tax retro check using the 22% supplemental rate plus FICA. For a precise take-home figure including state tax, run your full-year income through our paycheck calculator or gross-to-net calculator. If you are also receiving a bonus or overtime in the same period, those are calculated separately.
Questions
Retro pay calculator FAQ
How is retro pay calculated?
Retro pay equals the difference between the new pay rate and the old pay rate, multiplied by the number of hours or pay periods the raise should have covered. For example, if your hourly rate went from $20 to $22 and the raise was backdated 4 biweekly pay periods of 80 hours each, your gross retro pay is ($22 minus $20) times 320 hours, which equals $640.
Is retro pay taxed at a higher rate?
Retro pay is taxed as supplemental wages. Employers typically withhold federal income tax at the flat 22% supplemental rate (37% above $1 million) under IRS rules, plus FICA (6.2% Social Security up to the $184,500 wage base and 1.45% Medicare). It is not taxed at a higher rate than regular pay, but the flat withholding can feel larger than your normal per-paycheck deduction.
How long does an employer have to pay retro pay?
There is no single federal deadline. The FLSA requires back wages for underpayments to be corrected promptly, and most states require employers to pay agreed-upon wages within a regular pay cycle once the error is discovered or the raise is approved. Union contracts often specify a retro-pay timeline, commonly 30 to 90 days after ratification.
Does retro pay count toward Social Security wages?
Yes. Retro pay is considered wages for FICA purposes, so the employer withholds 6.2% for Social Security (up to the $184,500 wage base in 2026) and 1.45% for Medicare, just like on any regular paycheck.
Can retro pay push me into a higher tax bracket?
It can push some of your income into a higher marginal bracket for the year, but only the dollars above each threshold are taxed at the higher rate. If the flat 22% supplemental withholding exceeds your actual liability, you will get the difference back as a refund when you file.
- Sources: IRS Rev. Proc. 2025-32 (2026 brackets + supplemental rate 22%) · SSA 2026 OASDI wage base $184,500 · FLSA retroactive pay rules.
- 🔄 Last updated July 25, 2026 · Tax year 2026
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