Board of Contract Appeals General Services Administration Washington, D.C. 20405 _______________________________________________ November 16, 1999 _______________________________________________ GSBCA 15093-RELO In the Matter of ELIZABETH ATKESON Elizabeth Atkeson, Arlington, TN, Claimant. Steven A. Hardwick, Chief, Commercial Operations Service, Department of Veterans Affairs, Austin, TX, appearing for Department of Veterans Affairs. BORWICK, Board Judge. In this matter, Ms. Elizabeth Atkeson challenges the Department of Veterans Affairs' (DVA or agency) calculation of her relocation income tax (RIT) adjustment. In a prior year, the agency had overpaid claimant the Withholding Tax Allowance (WTA). It overpaid claimant after erroneously including Social Security pension reimbursement of claimant s spouse in determining the marginal tax rate used for calculating the WTA. The agency calculated claimant s RIT adjustment by excluding the Social Security payment to claimant's spouse; the exclusion resulted in a net amount due of $1226.34. The agency demanded claimant pay the difference-- $1475.70--between the WTA payment and the net amount due the employee after the RIT adjustment. Claimant maintains that the agency should have included her spouse s Social Security pension reimbursement in calculating the RIT adjustment. We sustain the decision of the agency. In determining that claimant owed $1475.70, the agency correctly applied the Federal Travel Regulation (FTR). The record shows the following. In December 1995, claimant and her spouse relocated in the interest of the Government from the DVA s medical center in San Diego, California, to the DVA s medical center in Memphis, Tennessee. As a result of that move, in 1996, the agency reimbursed her taxable relocation income of $6948.11. The agency paid her a year-one WTA of $2702.04, but that payment was based upon the total of the claimant s earned income as reflected in a form W-2 and Social Security benefits paid to claimant s spouse. The agency had erroneously assumed that a substantial portion of the spouse s Social Security payment was earned income reflected on a W-2 form. The agency audited the payment and, on July 16, 1999, processed claimant s RIT claim. In doing so, the agency adjusted claimant s WTA payment. The agency calculated the RIT allowance as $1226.34--based on claimant s income as reported on her W-2 form; the agency excluded her spouse s Social Security payment. The agency seeks from claimant $1475.70, which is the difference between the $2702.04 it had paid her and $1226.34. Claimant does not challenge the mathematical application of the formula. Rather, claimant maintains that in calculating the RIT adjustment, the agency should have included her spouse s social security payment because her spouse s Social Security is a result of earned income. He receives the benefit based on his prior working wages. As we explained in Linda R. Drees, GSBCA 14436-RELO, 99- 1 BCA 30,198, at 149,437: Under federal statute, 5 U.S.C. 5724(b) (1994), agencies may reimburse transferred employees for the additional income tax liability incurred by them as a result of certain relocation expense reimbursements. The FTR implements this statutory directive by establishing a two-step procedure that agencies use to reimburse employees for taxes that result from moving expense reimbursement. The first step is to calculate and to pay a withholding tax allowance (WTA), and the second step is to calculate a RIT allowance. 41 CFR 302-11 (1996). The agency withholds federal taxes from the amount it reimburses the employee because the reimbursed amount is considered to be taxable compensation to the employee. 41 CFR 302-11.6(b), (c). The purpose of paying a WTA is to offset, in an approximate way, the amount of federal income taxes withheld from the reimbursed amount. 41 CFR 302- 11.7(a). When an agency pays a WTA, the agency withholds federal taxes from the amount of the WTA because the payment of a WTA is also considered to be compensation to the employee. 41 CFR 302-11.7(f). The WTA is paid in the year that the employee is reimbursed for the moving expenses, which is referred to in the FTR as Year 1. 41 CFR 302-11.6(d)-(f), 11.7(d). The second step in this procedure is calculating a RIT allowance. The purpose of the RIT allowance is to ensure more specifically that the employee is compensated for tax liability resulting from receipt of relocation benefits. 41 CFR 302-11.5(f). The procedures for calculating the RIT allowance are contained in the FTR and were developed by the General Services Administration (GSA) in conjunction with the IRS [Internal Revenue Service]. The FTR explains that the procedures are "not to be adjusted to accommodate an employee's unique circumstance" which may differ from the circumstances assumed by GSA and the IRS when they developed the procedures for calculating a RIT allowance. 41 CFR 302-11.8(b)(2). The procedures produce an estimate of an employee's added tax liability due to moving expense reimbursements, and are not designed to reimburse an employee for precisely the amount of the employee's added tax liability. 41 CFR 302-11.8. The FTR refers to the year in which the RIT allowance is paid (or collected) as Year 2. 41 CFR 302-11.5(f). The FTR contains a formula for calculating the RIT allowance by using an employee's combined (federal and state) marginal tax rates for Years 1 and 2, the amount of the taxable reimbursements made by the agency, and the WTA paid in Year 1. 41 CFR 302-11.8(h). The combined marginal tax rates depend upon the amount of earned income that will be reported on the employee's federal tax return in Year 1. For purposes of the RIT allowance, earned income includes only gross compensation reported as income to the IRS and the net earnings for self-employment shown on Schedule SE of IRS Form 1040. If the agency calculates a RIT allowance using the FTR formula and the result is a positive dollar amount, the agency will pay that amount to the employee. If the agency calculates a RIT allowance using the FTR formula and the result is a negative dollar amount, this means that the agency paid an excessive amount of WTA, and the employee has to repay that excess WTA to the agency. 41 CFR 302- 11.7(d), -11.8(f). (Emphasis added). Regarding the emphasized portion of the above quotation, the FTR specifically provides: In order to determine the [common marginal tax rates] needed to calculate the RIT allowance, the employee must determine the appropriate amount of earned income (as prescribed herein) that was or will be reported on his/her Federal tax return for the tax year in which the covered taxable reimbursements were received. Such amount will also include the spouse s earned income if a joint filing status is claimed. For purposes of this regulation, appropriate earned income shall include only the amount of gross compensation reported on IRS Form(s) W-2 and, if applicable, the net earnings (or loss) from self-employment income as shown on Schedule SE of IRS Form 1040. 41 CFR 302-11.8(d) (1995). We have consistently held that Social Security payments are not earned income to be included in the calculation for the RIT adjustment. Linda Drees; William A. Lewis, GSBCA 14367-RELO, 98- 1 BCA 29,532. Claimant states that the level of Social Security benefits may be based upon a person s working wages, but that construct does not qualify the benefits as earned income under the FTR. The FTR clearly defines earned income and it does not include a spouse s social security payment. The agency, therefore, correctly applied the FTR, so the action of the agency is sustained. Claimant owes the agency $1475.70 for the RIT adjustment. __________________________ ANTHONY S. BORWICK Board Judge