Railroad Retirement Board
Federal Income Tax and
Railroad Retirement Benefits
February 2012
(Please note Item 18 as it relates to state income taxes. No state may tax Railroad Retirement, period. Many tax preparers are unaware of this section of federal law. Share this information with others under the Railroad Retirement Act.)
- - - - - - - - - - - - - - - - - - - - - - - - - - -
The following questions and answers describe
the tax statements issued by the Railroad Retirement Board (RRB) each January
for Federal income tax purposes. Railroad retirement beneficiaries
needing information about these statements, or about tax withholding from their
benefits, should contact an office of the RRB. For further Federal income
tax information, railroad retirement beneficiaries should contact the nearest
office of the Internal Revenue Service (IRS).
1. How are the annuities paid under
the Railroad Retirement Act treated under the Federal income tax laws?
A railroad retirement annuity is a single
payment comprised of one or more of the following components, depending on the
annuitant’s age, the type of annuity being paid, and eligibility
requirements: a Social Security Equivalent Benefit (SSEB) portion of tier
I, a Non-Social Security Equivalent Benefit (NSSEB) portion of tier I, a tier
II benefit, a vested dual benefit, and a supplemental annuity.
In most cases, part of a railroad retirement
annuity is treated like a social security benefit for Federal income tax
purposes, while other parts of the annuity are treated like private pensions
for tax purposes. Consequently, most annuitants are sent two tax
statements from the RRB each January, even though they receive only a single
annuity payment each month.
2. Which railroad retirement
benefits are treated as social security benefits for Federal income tax
purposes?
The SSEB portion of tier I (the part of a
railroad retirement annuity equivalent to a social security benefit based on
comparable earnings) is treated for Federal income tax purposes the same way as
a social security benefit. The amount of these benefits that may be
subject to Federal income tax, if any, depends on the beneficiary's income.
If taxable pensions, wages, interest,
dividends, and other taxable income, plus tax-exempt interest income, plus half
of the amount of the social security equivalent benefit payments exceed:
· $25,000
for an individual, $32,000 for a married couple filing jointly, and zero for a
married individual who files separately but lived with his or her spouse any
part of the year, up to 50 percent of these railroad retirement benefit
payments may be considered taxable income;
· $34,000
for an individual, $44,000 for a married couple filing jointly, and zero for a
married individual who files separately but lived with his or her spouse any
part of the year, up to 85 percent of these benefits may be taxable income.
3. Which railroad retirement
benefits are treated like private pensions for Federal income tax purposes?
The NSSEB portion of tier I, tier II benefits,
vested dual benefits, and supplemental annuities are all treated like private
pensions for Federal income tax purposes. In some cases, primarily those
in which early retirement benefits are payable to retired employees and spouses
between ages 60 and 62, some occupational disability benefits, and other
categories of unique RRB entitlements, the entire annuity may be treated like a
private pension. This is because social security benefits based on age
and service are not payable before age 62, social security disability benefit
entitlement requires total disability, and the Social Security Administration
does not pay some categories of beneficiaries paid by the RRB.
4. What information is shown on the
railroad retirement tax statements sent to annuitants in January?
One statement, Form RRB-1099 for U.S. citizens
or residents (or Form RRB-1042S for nonresident aliens), shows the SSEB
portion of tier I or special minimum guaranty payments made during the tax
year, the amount of any such benefits that an annuitant may have repaid to the
RRB during the tax year, and the net amount of these payments after subtracting
the repaid amount. The amount of any offset for workers' compensation and
the amount of Federal income tax withheld from these payments are also
shown. Illustrations and explanations of items found on Form RRB-1099 and
Form RRB-1042S can be found in IRS Publication 915, Social Security and
Equivalent Railroad Retirement Benefits.
The other statement, Form RRB-1099-R (for both U.S.
citizens and nonresident aliens), shows the NSSEB portion of tier I, tier II,
vested dual benefit, and supplemental annuity paid to the annuitant during the
tax year, and may show an employee contribution amount. The NSSEB
portion of tier I along with tier II are considered
contributory pension amounts and are shown as a single combined amount in the
Contributory Amount Paid box (Item 4) on the statement. The vested
dual benefit and supplemental annuity are considered noncontributory pension
amounts and are shown as separate items on the statement. The total gross
paid amount shown on Form RRB-1099-R is the sum of the NSSEB portion of tier I,
tier II, vested dual benefit and supplemental annuity payments. Also
shown is the amount of Federal income tax withheld from these payments.
The statement also shows the amount of any of these prior year benefits repaid
by the annuitant to the RRB during the tax year. This amount is not
subtracted from the gross amounts shown because its treatment depends on the
years to which the repayment applies and its taxability in those years.
To determine the year or years to which the repayment applies, annuitants
should contact the RRB. Illustrations and explanations of items found on
Form RRB-1099-R can be found in IRS Publication 575, Pension and Annuity
Income.
If the annuitant is taxed as a nonresident
alien of the
The total Medicare premiums deducted from the
railroad retirement annuity may also be shown on either Form RRB-1099 (Form
RRB-1042S for nonresident aliens) or Form RRB-1099-R. Medicare premiums
deducted from social security benefits paid by the RRB, paid by a third party, or paid through direct billing are not shown on
RRB-issued tax statements.
Copy B and/or Copy 2 of Form RRB-1099-R must be
submitted with the annuitant’s tax return. Annuitants should retain copy
C of all statements for their records, especially if they may be required to
verify their income in connection with other Government programs.
5.
What is the significance of the employee contribution amount?
For railroad retirement annuitants, the
employee contribution amount is considered the amount of railroad retirement
payroll taxes paid by the employee that exceeds the amount that would have been
paid in social security taxes if the employee’s railroad service had been
covered under the Social Security Act. The employee contribution amount
is referred to by the IRS as an employee’s investment, or cost, in the
contract. An employee contribution amount is not a payment or
income received during the tax year. Only employee and survivor
annuitants may have an employee contribution amount shown in Item 3 of their
Form RRB-1099-R.
The contributory amount paid (NSSEB portion of
tier I and/or tier II) is considered income and is reported to the IRS.
The contributory amount paid is either fully taxable or partially taxable
depending on whether the employee contribution amount has been used to compute
a tax-free (nontaxable) portion of the contributory amount paid. If no
employee contribution amount is shown on Form RRB-1099-R, then the contributory
amount paid is fully taxable.
The use and recovery of the employee
contribution amount is important for annuitants since it affects the amount of
taxable income to be reported on income tax returns. There is a tax
savings advantage in using (recovering) employee contributions since it may
reduce the taxability of the contributory amount paid and in turn the amount of
taxable income.
Annuitants should refer to IRS Publication 575,
Pension and Annuity Income, and Publication 939, General Rule for
Pensions and Annuities, for more information concerning the tax treatment
of the contributory amount paid (see questions 6 and 7 below) and use of the
employee contribution amount.
6.
If an employee contribution amount is shown on my Form RRB-1099-R, may I use
the entire amount?
The employee contribution amount shown is
attributable to the railroad retirement account number. This means that
the employee contribution amount must be shared by all eligible annuitants
under that same railroad retirement account number.
If an employee contribution amount is shown on
your Form RRB-1099-R and your annuity beginning date is
If an employee contribution amount is not
shown on your Form RRB-1099-R, you cannot use or share the employee
contribution amount. Therefore, your contributory amount paid and total
gross paid shown on your Form RRB‑1099-R are fully taxable.
When more than one annuitant is or was entitled
to a contributory amount paid under the same railroad retirement account
number, any eligible annuitants may not use the entire employee
contribution amount shown on their Form RRB-1099-R for themselves. They
must first determine the amount of the total employee contribution amount they
are individually entitled to use. That means determining:
1. The portion of the total employee contribution
amount still potentially available for use, and
2. The portion of that amount
that must be shared by those eligible annuitants
currently receiving contributory amounts paid.
For example, a survivor family group consists
of a widow and two full time students. All three annuitants are eligible
to use a portion of the employee contribution amount shown on their Forms
RRB-1099-R. They must determine the portion of the employee contribution
amount they may each use. Item 7 below provides general information on
how to calculate this amount. For more specific information, annuitants
should refer to IRS Publication 575, Pension and Annuity Income, and
Publication 939, General Rule for Pensions and Annuities.
Any change in the total number of eligible
annuitants receiving contributory amounts paid will affect the nontaxable amounts
of these annuitants. This change is retroactive to the date on which
the number of eligible annuitants changed. Any of these changes could
potentially affect the taxable amounts reported to the IRS on prior year income
tax returns. Annuitants should determine if any change would require them
to file original or amended U.S. Federal income tax returns for prior tax
years.
In the above example, if one of the full time
students is no longer eligible for an annuity, the remaining unused portion of
the employee contribution amount after termination of the ineligible individual
must then be recalculated for use by the widow and remaining full time student.
7.
How are contributory and noncontributory pension amounts taxed?
Amounts shown on Form RRB-1099-R are treated
like private pensions and taxed either as contributory pension amounts or as
noncontributory pension amounts. The NSSEB portion of tier I and tier II
(shown as the contributory amount paid on the statement) are contributory
pension amounts. Contributory pension amounts may be fully taxable or
partially taxable depending on the presence and use (recovery) of the employee
contribution amount. Vested dual benefits and supplemental annuities are
considered noncontributory pension amounts. Noncontributory pension
amounts are always fully taxable and do not involve the use of the employee
contribution amount.
For annuitants with annuity beginning dates before
For annuitants with annuity beginning dates
from
For annuitants with annuity beginning dates
effective
The contributory amounts paid of disabled
employee annuitants under minimum retirement age are fully taxable and
these annuitants cannot use the employee contribution amount.
Therefore, the contributory amount paid in Item 4 and the total gross pension paid in Item 7 of Form RRB-1099-R are fully taxable.
(Minimum retirement age is generally the age at which individuals could retire
based on age and service, which is age 60 with 30 or more years of railroad
service or age 62 with less than 30 years of railroad service.) However,
once the disabled employee annuitant reaches minimum retirement age, the annuitant
may use the employee contribution amount shown on Form RRB-1099-R to compute
the nontaxable amount of his or her contributory amount paid.
The RRB does not calculate the nontaxable
amount of the contributory amount paid for annuitants. Annuitants should contact the IRS or
their own tax preparer for assistance in calculating the nontaxable amount of
their contributory amount paid. For more information on the tax treatment
of the contributory amount paid, vested dual benefits, supplemental annuities,
the employee contribution amount, and how to use the IRS actuarial tables,
annuitants should refer to IRS Publication 939, General Rule for Pensions
and Annuities, and IRS Publication 575, Pension and Annuity Income.
8.
Does Form RRB-1099-R show the taxable amount of any contributory railroad
retirement benefits or just the total amount of such benefits paid during the
tax year?
Form RRB-1099-R shows the total amount
of any contributory railroad retirement benefits (NSSEB and tier II) paid during
the tax year. The RRB does not calculate the taxable
amounts. It is up to the annuitant to determine the taxable and
nontaxable (tax-free) amounts of the contributory amount paid using the
employee contribution amount.
9. Can an employee contribution
amount change?
Yes. The employee contribution amount
shown on Form RRB-1099-R is based on the latest railroad service and earnings
information available on the RRB’s records.
Railroad service and earnings information (and the corresponding employee
contribution amount) often changes in the first year after an employee retires
from railroad service. That is when the employee’s final railroad service
and earnings information is furnished to the RRB by his or her employer.
As a result, the employee contribution amount shown on the most recent Form
RRB-1099-R may have increased or decreased from a previously-issued Form
RRB-1099-R.
Any change in an employee contribution amount
is fully retroactive to the railroad retirement annuity beginning date. Therefore,
the nontaxable amount of the contributory amount paid should be recomputed.
This could affect the taxable amounts reported to the IRS on prior income tax
returns. Generally, an increase in the employee contribution amount
is advantageous, as it will yield a larger tax-free amount. However, a
decrease in the employee contribution amount may be disadvantageous since it
may result in an increased tax liability. In any case, annuitants should
determine if any change in their employee contribution amount would require
them to file original or amended Federal income tax returns for prior tax
years.
10. What if a person receives
social security as well as railroad retirement benefits?
Railroad retirement annuitants who also
received social security benefits during the tax year receive a Form SSA-1099
(or Form SSA-1042S if they are nonresident aliens) from the Social Security
Administration. They should add the net social security equivalent or
special guaranty amount shown on Form RRB-1099 (or Form RRB-1042S) to the net
social security income amount shown on Form SSA-1099 (or Form SSA-1042S) to get
the correct total amount of these benefits. They should then enter this
total on the Social Security Benefits Worksheet in the instructions for Form
1040 or 1040A to determine if part of their social security and railroad
retirement social security equivalent benefits is taxable income.
Additional information on the taxability of
these benefits can be found in IRS Publication 915, Social Security and
Equivalent Railroad Retirement Benefits.
11. Are the residual lump sums,
lump-sum death payments or separation allowance lump-sum amounts paid by the
RRB subject to Federal income tax?
No. These amounts are nontaxable and are
not subject to Federal income tax. The RRB does not report these amounts
on statements.
12.
If an annuity was due but unpaid at the time of an annuitant’s death, it may be
payable to another person. Would that person be subject to Federal income
tax on this annuity?
Yes, if the deceased annuitant would have had
to pay Federal income tax on the benefit. The taxable amount of the
annuity is reported to the IRS and on Form RRB-1099 (or Form RRB-1042S) or Form
RRB-1099-R, as appropriate, which is sent to the person who received the
annuity.
13.
Are Federal income taxes withheld from railroad retirement annuities?
Yes, and the amounts withheld are shown on the
statements issued by the RRB each year. However, an annuitant may request
that Federal income taxes not be withheld, unless the annuitant is a
nonresident alien or a
Annuitants can voluntarily choose to have
Federal income tax withheld from their SSEB payments. To do so, they must
complete IRS Form W-4V, Voluntary Withholding Request, and send it to
the RRB. They can choose withholding from their SSEB payments at the
following rates: 7 percent, 10 percent, 15 percent, or 25 percent.
Annuitants who are taxed as U.S. citizens and
who do not live outside the 50 states or Washington, D.C., and wish to have
Federal income taxes withheld from their NSSEB and tier II (contributory amount
paid), vested dual benefit, and supplemental annuity payments must complete a
tax withholding election on Form RRB W-4P, Withholding Certificate For
Railroad Retirement Payments, and send it to the RRB. An annuitant is
not required to file Form RRB W-4P. If that form is not filed, the
RRB will withhold taxes only if the combined portions of the NSSEB and tier II
(contributory amount paid), vested dual benefit and supplemental annuity
payments are equal to or exceed an annual threshold amount. In that case,
the RRB withholds taxes as if the annuitant were married and claiming three
allowances.
14. How is tax withholding applied
to the railroad retirement benefits of nonresident aliens?
A nonresident alien is a person who is neither
a citizen nor a resident of the
Form RRB-1001 is sent by the RRB to nonresident
aliens every three years to renew the claim for a tax treaty exemption. Failure
by a nonresident alien to complete Form RRB-1001 will cause loss of the
exemption until the exemption is renewed. Such renewals have no
retroactivity. Also, a nonresident alien must include his or her
If a Canadian citizen claims an exemption under
the tax treaty, no tax is withheld from the SSEB portion of tier I and a tax
withholding rate of 15 percent is applied to the benefit portions treated like
pension payments.
Additional information concerning the taxation
of nonresident aliens can be found in IRS Publication 519, U.S. Tax Guide
for Aliens.
15. Are unemployment benefits paid
under the Railroad Unemployment Insurance Act subject to Federal income tax?
All unemployment benefit payments are subject
to Federal income tax. Each January, the RRB sends Form 1099-G to
individuals, showing the total amount of railroad unemployment benefits paid
during the previous year.
16.
Are sickness benefits paid by the RRB subject to Federal income tax?
Sickness benefits paid by the RRB, except for
sickness benefits paid for on-the-job injuries, are subject to Federal income
tax under the same limitations and conditions that apply to the taxation of
sick pay received by workers in other industries. Each January, the RRB
sends Form W-2 to affected beneficiaries. This form shows the amount of
sickness benefits that each beneficiary should include in his or her taxable
income.
17. Does the RRB withhold Federal
income tax from unemployment and sickness benefits?
The RRB withholds Federal income tax from
unemployment and sickness benefits only if requested to do so by the
beneficiary. A beneficiary can request withholding of 10 percent of his
or her unemployment benefits by filing IRS Form W-4V, Voluntary Withholding
Request, with the RRB. A beneficiary can request withholding from
sickness benefits by filing IRS Form W-4S, Request for Federal Income Tax
Withholding from Sick Pay.
18. Are railroad retirement and
railroad unemployment and sickness benefits paid by the RRB subject to State
income taxes?
The Railroad Retirement and Railroad
Unemployment Insurance Acts specifically exempt these benefits from State
income taxes.
19. Can a railroad employee claim a
tax credit on his or her Federal income tax return if the employer withheld
excess railroad retirement taxes during the year?
If any one railroad employer withheld more than
the annual maximum amount, the employee must ask that employer to refund the
excess. It cannot be claimed on the employee's return.
20.
Can a railroad employee working two jobs during the year get a tax credit if
excess retirement payroll taxes were withheld by the employers?
Railroad employees who also worked for a nonrailroad social security covered employer in the same
year may, under certain circumstances, receive a tax credit equivalent to any
excess social security taxes withheld.
Employees who worked for two or more railroads
during the year, or who had tier I taxes withheld from their RRB sickness
benefits in addition to their railroad earnings, may be eligible for a tax
credit of any excess tier I or tier II railroad retirement taxes
withheld. The amount of tier I taxes withheld from sickness benefits paid
by the RRB is shown on Form W-2 issued to affected beneficiaries.
Employees who had tier I taxes withheld from their supplemental sickness
benefits (benefits paid under an RRB-approved nongovernmental sickness insurance
plan, such as a supplemental sickness benefit plan established by a railroad)
may also be eligible for a tax credit of any excess tier I tax.
Such tax credits may be claimed on an
employee's Federal income tax return.
Employees who worked for two or more railroads, received sickness
benefits, or had both railroad retirement and social security taxes withheld
from their earnings should see IRS Publication 505, Tax Withholding and
Estimated Tax, for information on how to figure any excess railroad
retirement or social security tax withheld.
Public Affairs 312-751-4777
Posted: 02/03/12