Railroad Retirement Board
Federal Income Tax and
Railroad Retirement Benefits
January 2008
(Please note Item 17 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.)
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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 the nearest 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, the
blue and white Form RRB-1099 for U.S. citizens or residents (or black and white
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,
the green and white 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, as well as the
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 Part B
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 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 items 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.
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 total gross
pension paid in Item 7 of Form RRB-1099-R is 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. 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 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 greater than $1,547.01. In that case, the RRB withholds taxes as if
the annuitant were married and claiming three allowances.
13. 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 social
security equivalent benefit 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.
14. 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.
15. 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.
16. 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 Form W-4V with the Board. A
beneficiary can request withholding from sickness benefits by filing Form W-4S.
17. 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.
18. 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.
19. 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 non-railroad 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
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