Railroad Retirement annuities, like Social Security benefits, increased in January 1999 on the basis of the rise in the Consumer Price Index (CPI) during the 12 months preceding October 1998.

Cost-of-living increases are calculated in both the tier I and tier II benefits included in a Railroad Retirement annuity. Tier I benefits, like Social Security benefits, increased by 1.3 percent, which is the percentage of the CPI rise. Vested dual benefit payments and supplemental annuities, also paid by the Railroad Retirement Board, are not adjusted for the CPI rise.

In January 1999, the average regular Railroad Retirement employee annuity increased $13 a month to $1,297 and the average of combined benefits for an employee and spouse increased $18 a month to $1,887. For aged widow(er)s, the average survivor annuity increased $9 a month to $777.

If a Railroad Retirement annuitant also receives a Social Security benefit, the increased tier I benefit is reduced by the increased Social Security benefit. Tier II cost-of-living increases are not reduced by Social Security increases.

1999 Railroad Retirement and Unemployment Insurance Taxes

While regular Railroad Retirement tax rates are not changed for 1999, the amounts of compensation subject to these payroll taxes increased in January 1999 as a result of indexing to average national wage increases.

The Railroad Retirement Tier I tax rate of 7.65 percent for employers and employees, which 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, remains the same. However, the maximum amount of an employee's earnings subject to the 6.20 percent rate increased to $72,600 in 1999 from $68,400 in 1998. There is no maximum on earnings subject to the 1.45 percent Medicare rate; all of an employee's compensation is subject to the Medicare tax.

The maximum amount of earnings subject to the Railroad Retirement Tier II tax of 4.90 percent on employees, and 16.10 percent on employers, increased to $53,700 from $50,700.

In 1998, the regular Railroad Retirement tax on an employee earning $68,400 was $7,716.90 and the employer's regular Railroad Retirement tax on such an employee was $13,395.30. In 1999, the Railroad Retirement tax on an employee earning $72,600 will be $8,185.20 compared to $5,553.90 under Social Security, and the employer's tax will be $14,199.60.

The rate of the supplemental Railroad Retirement annuity tax paid solely by rail employers is determined quarterly by the Railroad Retirement Board. The rate for all four quarters of 1998 has been 35 cents per work-hour.

Employers, but not employees, also pay railroad unemployment insurance taxes, which are experience rated by employer. The basic rate range from a minimum of 0.65 percent to a maximum of 12 percent. However, as the Railroad Unemployment Insurance Account balance was less than $100.6 million but more than $50.3 million on June 30, 1998, the surcharge of 1.5 percent, which was added to the basic tax rates in 1998, remains in effect for 1999. This will not, however, increase the maximum rate. Also, the 1.5 percent surcharge does not apply to new employers. New employers in 1999 will initially pay a tax of 1.24 percent, which represents the average rate paid by all employers in the period of 1995-1997. For all other railroad employers in 1999, unemployment insurance tax rates 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 employee compensation up to $970.

In 1999, 66 percent of covered employers will be assessed a rate of 2.15 percent, which is $20.86 per month for each employee with earnings of $970 or more per month, and 10 percent will be assessed a rate of 12 percent, which is $116.40 per month for each employee with earnings of $970 or more per month.

Retiree Earnings Limits to Rise

Railroad Retirement annuitants who work after retirement can earn more in 1999 without having their benefits reduced, as a result of increases in earnings limits indexed to average national wage increases.

Railroad Retirement annuities generally consist of Tier I and Tier II benefits and may include certain vested dual benefit payments and/or a supplemental benefit. Like Social Security benefits, Railroad Retirement Tier I benefits and vested dual benefits paid to employees and spouses, and Tier I, Tier II and vested dual benefits paid to survivors, are subject to earnings deductions if post-retirement earnings exceed certain exempt amounts.

For those under age 65, the exempt amount rises to $9,600 in 1999 from $9,120 in 1998. For beneficiaries ages 65 through 69, the exempt earnings amount rises to $15,500 in 1999 from $14,500 in 1998. These earnings limitations do not apply to any annuitants age 70 or older, starting with the month in which they are 70.

For those under age 65, the earnings deductions is $1 in benefits for every $2 of earnings over the exempt amount. For those ages 65-69, the deduction is $1 for every $3 of earnings over the exempt amount.

Earnings consist for this purpose of all wages received for services rendered, plus any net earnings from self-employment. Interest, dividends, certain rental income or income from stocks, bonds, or other investments are not considered earnings for this purpose.

Retired employees and spouses, regardless of age, who work for their last pre-retirement nonrailroad employer are also subject to an earnings deduction, in their Tier II and supplemental benefits, of $1 for every $2 in earnings up to a maximum deduction of 50 percent. This earnings restrictions does not change from year to year and does not allow for an exempt amount.

A spouse benefit is subject to reduction not only for the spouse's earnings, but also for the earnings of the employee, regardless of whether the earnings are from service for the last pre-retirement nonrailroad employer or other post-retirement employment.

Special work restrictions applicable to disability annuitants also do not change in 1999.

Regardless of age and/or earnings, no Railroad Retirement annuity is payable for any month in which an annuitant (retired employee, spouse or survivor) works for a railroad employer or railroad union.