Railroad Retirement Board
Year 2006 Railroad Retirement and
Unemployment Insurance Taxes
November 2005
The amounts of compensation subject to railroad retirement
tier I and tier II payroll taxes will increase in 2006. However, the tier
I tax rate on employees and employers remains unchanged. Under the Railroad Retirement and Survivors'
Improvement Act of 2001, tier II tax rates are now determined annually by an
average account benefits ratio. Based on this ratio, the tier II tax
rates on employees and employers will also remain unchanged in 2006.
Railroad unemployment insurance tax rates paid by employers will continue to
include a 1.5 percent surcharge in 2006.
Tier I and Medicare Tax.--The railroad retirement tier I payroll tax rate on covered
rail employees and employers for the year 2006 remains at 7.65 percent.
The railroad retirement tier I tax rate is the same as the social security tax, and for withholding and reporting purposes is divided
into 6.20 percent for retirement and 1.45 percent for Medicare hospital
insurance. The maximum amount of an employee's earnings subject to the
6.20 percent rate will increase to $94,200 in 2006 from $90,000 in 2005, but there
is no maximum on earnings subject to the 1.45 percent Medicare rate. The increase in the amount of earnings
subject to railroad retirement and social security taxes is based on indexing
to increases in average national wages.
Tier II Tax.--The railroad retirement tier II tax rate on employees will remain
at 4.4 percent in 2006, and the rate on employers will remain at 12.6 percent.
The maximum amount of earnings subject to railroad retirement tier II taxes,
however, will increase to $69,900 in 2006 from $66,900 in 2005. Tier II tax rates under the 2001 Railroad
Retirement and Survivors' Improvement Act are based on an average account
benefits ratio reflecting railroad retirement fund levels. Depending on
this ratio, the tier II tax rate for employers can range between 8.2 percent
and 22.1 percent, while the tier II rate for employees can be between 0 percent
and 4.9 percent.
Unemployment Insurance Tax.--Employers, but not employees, also pay railroad
unemployment insurance taxes, which are experience-rated by employer. The basic
tax rates range from a minimum of 0.65 percent to a maximum of 12 percent on
monthly earnings up to $1,195 in 2006, up from $1,150 in 2005. However, the
Railroad Unemployment Insurance Act also provides for a surcharge in the event
the Railroad Unemployment Insurance Account balance falls below an indexed
threshold amount, and such a surcharge of 1.5 percent applied in 2004 and
2005. Since the accrual balance of the Railroad Unemployment Insurance
Account was $113.1 million on
The unemployment insurance tax rates on railroad employers in 2006 therefore
will range from 2.15 percent (the minimum basic rate of 0.65 percent plus the
1.5 percent surcharge) to a maximum of 12 percent on monthly compensation up to
$1,195.
The 1.5 percent surcharge will not apply to new employers in 2006, and new employers
will initially pay a tax rate of 4.03 percent, which represents the average
rate paid by all employers in the period 2002-2004.
For 76 percent of covered employers, the unemployment insurance rate assessed
will be 2.15 percent in 2006.
Public Affairs 312-751-4777
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