Year 2005 Railroad Retirement and
Unemployment Insurance Taxes
(December, 2004) The
amounts of compensation subject to railroad retirement tier I and tier II
payroll taxes will increase in 2005. 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 rate
on both employees and employers will decrease in 2005. Railroad unemployment
insurance tax rates paid by employers will continue to include a 1.5 percent
surcharge in 2005.
Tier I and Medicare Tax.--The railroad retirement tier I payroll tax rate on covered
rail employees and employers for the year 2005 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 $90,000 in 2005 from $87,900 in 2004, 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 decrease
by 0.5 percent, from 4.9 percent to 4.4 percent in 2005, and the rate on
employers will also decrease by 0.5 percent, from 13.1 percent to 12.6
percent. The maximum amount of earnings subject to railroad retirement
tier II taxes, however, will increase to $66,900 in 2005 from $65,100 in
2004. 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 $1,150 in 2005, up from $1,130 in 2004. 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.
Since the accrual balance of the Railroad Unemployment Insurance Account was
$98.6 million on
The unemployment insurance tax rates on railroad employers in 2005 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
$1,150.
The 1.5 percent surcharge will not apply to new employers in 2005, and new employers
will initially pay a tax rate of 3.43 percent, which represents the average
rate paid by all employers in the period 2001-2003.
For 77 percent of covered employers, the unemployment insurance rate assessed
will be 2.15 percent in 2005.
tdwyertcu@aol.com
U.S. Railroad Retirement Board
Office of Public Affairs
844 North Rush Street
312-751-7154 (fax)
http://www.rrb.gov
No. 04-10
Posted: