Retro pay calculator

What a retro cheque is actually made of

Two components, not one. Every calculator ranking for this query publishes only the first.

The usual formula is the rate difference multiplied by hours worked. On this example that returns $645.00. The right answer is $667.50, and the gap of $22.50 sits entirely on the overtime hours.

Here is why. Overtime is not paid at a fixed hourly figure, it is paid as a multiple of the regular rate, and the regular rate is derived from what the week actually paid. 29 CFR 778.109 states that the regular hourly rate is determined by dividing his total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked by him in that workweek for which such compensation was paid. When a raise is applied back to those weeks, the total remuneration for each of them goes up, so the regular rate for each of them goes up, and the overtime premium built on that rate goes up with it. An hour of overtime is therefore owed the rate difference at 1.5 times, not at straight time.

The miss always lands the same way, on the weeks the employee worked hardest. Anyone checking an employer's retro figure should total the overtime hours in the window first, because that is the line most often left out.

Why the retro cheque is withheld at a flat rate

The second surprise, and the reason the cheque lands smaller than the arithmetic above.

Retro pay is not a regular wage in the eyes of the withholding rules. IRS Publication 15 lists it by name. Supplemental wages are wage payments to an employee that aren't regular wages. They include, but aren't limited to, bonuses, commissions, overtime pay (see Overtime compensation in section 5), payments for accumulated sick leave, severance pay, awards, prizes, back pay, reported tips (see Federal income tax withholding on tips in section 6), retroactive pay increases, and payments for nondeductible moving expenses. Back pay and retroactive pay increases are both on that list.

That classification decides the withholding. Where the employer identifies the retro amount separately from regular wages, Publication 15 gives the flat method as Withhold a flat 22% (no other percentage allowed). The same publication sets that rate at 22%, and where supplemental wages for the calendar year run past $1,000,000 it is the excess above that figure, not the whole payment, that is withheld at 37%. A reader withheld at a lower rate on regular pay loses the difference until filing.

Social Security and Medicare ignore the classification. They come off retro pay at the usual 6.2% up to the $184,500 wage base and 1.45% with no ceiling, plus 0.9% above $200,000 for the year. That is why the year to date box matters. A retro cheque paid after the wage base is cleared loses its Social Security line and the net jumps.

Flat method against aggregate method

The employer may lawfully use either one, and they do not produce the same cheque.

The alternative is in the same section of Publication 15. If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages and withhold federal income tax as if the total were a single payment for a regular payroll period. The retro amount then rides inside the normal paycheck at the rate that paycheck would attract, which for most people is below 22%.

On this example the flat method takes $230.96 and the aggregate method takes $211.04, a difference of $19.92 on one cheque, of which $19.92 is the federal line. Neither figure is wrong, and the employee has no say in which one payroll runs.

The aggregate figure is built by pricing one pay period of regular wages, $2,358.50 at the new rate, then pricing the same period with the retro amount added, and differencing the two.

Withholding is not the tax

A third number, and the one that decides what the retro pay really costs.

Withholding is a deposit against a liability settled on the annual return. The liability is what the retro amount adds to the year's tax, which turns on the bracket the reader is in, not on the flat rate payroll applied.

At $41,000 of wages for the year, adding $667.50 of retro pay raises the federal income tax by $80.10. The flat method withholds $146.85 against it. The $66.75 difference is not a tax, it is an overpayment, and it settles on the annual return. Push the wages so far this year past a bracket edge and the sign flips, leaving a balance due instead.

That is the common misreading of a retro cheque. The size of the deduction on a payslip says nothing about the size of the tax.

Retro pay by number of late pay periods

The same $2.50 rate difference and the same hours, across other delays. Find the row that matches how long the raise took to arrive.

The overtime column is the one to check against an employer's figure. A retro payment that is a round multiple of the straight-time line and nothing more was computed without it.

Common questions

What this leaves out

The result is an estimate and not tax advice. It excludes pre-tax deductions such as a 401(k) or an HSA, local and city income taxes, credits and garnishments. State income tax is carried as a single rate, so in a state with graduated brackets that line is an approximation.

Three limits are worth naming. The overtime component assumes one hourly rate across the retro window and assumes the overtime hours entered were paid at the old rate. The reconciliation treats the year to date figure as the wages the year will end on, which fits a retro cheque paid in December and understates the marginal rate for one paid in March. And state law can require more than the federal overtime floor, including daily overtime, which is not modelled here.

Sources and method

Federal withholding rules, the supplemental wage definition, the flat rate and the aggregate method come from IRS Publication 15 (Circular E), Employer's Tax Guide. Social Security and Medicare rates and the $184,500 wage base come from IRS Tax Topic 751. The regular rate definition that drives the overtime component is 29 CFR 778.109.

The Illinois supplemental rate of 4.95% is read from 2026 Booklet IL-700-T Illinois Withholding Tax Tables, Effective January 1, 2026, Tax rate 4.95% (R-12/25). Change the state above and this line follows it.

The Illinois supplemental rate was not verifiable in this data set, so the general state estimate stands in and no state source is linked for it.

Federal brackets, the standard deduction, FICA and the supplemental rates come from one table in the site engine, checked in August 2026 for the 2026 tax year.

Other tools on StateWage

Every figure here is an estimate, not tax advice. Pre-tax deductions, local and city taxes, credits and employer payroll rules are excluded, and state income tax is modelled as a single rate.