The following questions and answers describe the benefit
information statements issued by the Railroad Retirement Board each
January for federal income tax purposes. Railroad retirement
beneficiaries needing information about these statements, or tax
withholding from their benefits, should contact the nearest office of
the Railroad Retirement Board. For further federal income tax
information, railroad retirement beneficiaries should contact the
nearest office of the Internal Revenue Service.
How are the annuities paid under the Railroad Retirement
Act treated under the federal income tax laws?
In most cases, part of a railroad retirement annuity is treated
like a social security benefit for income tax purposes, while other
parts of the annuity are treated like private and public service
pensions for tax purposes. Consequently, most annuitants are sent two
benefit information statements from the Railroad Retirement Board each
January, even though they receive only a single annuity payment each
month.
Which railroad retirement benefits are treated as social
security benefits for federal income tax purposes?
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 adjusted gross income plus non-taxable interest income and half
of the social security equivalent benefit payment 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.
Which railroad retirement benefits are treated like private
and public service pensions for federal income tax purposes?
Railroad retirement annuity payments exceeding social security
equivalent payments, plus any vested dual benefits and supplemental
annuities, are all treated like private and public service 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, and some occupational disability
benefits, the entire annuity may be treated like a private or public
pension. This is because social security retirement benefits are not
payable before age 62 and social security benefit entitlement requires
total disability.
For annuities beginning after July 1, 1986, railroad retirement
payments exceeding social security equivalent levels are generally
taxable under the Internal Revenue Code General Rule or Simplified
General Rule. For income tax purposes under these rules, contributory
payments are payable subject to income tax immediately upon
retirement, but are prorated to yield a tax-free amount based on an
employee's previously-taxed pension contributions.
For railroad retirement annuitants, employee contributions
(referred to by the IRS as an employee's investment in the contract
(cost)) are considered to be the amount of railroad retirement payroll
taxes paid by the employee over and above comparable social security
payroll tax rates. Employee contributions are not a payment or income
received during the tax year.
However, vested dual benefit payments and railroad retirement
supplemental annuities are considered noncontributory and fully
taxable. Nor do spouse annuity payments exceeding social security
equivalent payments include a tax-free amount; these benefits are also
fully taxable.
Additional information about the tax treatment of railroad
retirement benefits over and above social security equivalent benefits
can be found in IRS Publication 575, Pension and Annuity Income,
and Publication 939, General Rule for Pensions and Annuities.
If the employee died during the tax year, survivors should also refer
to these publications because a death benefit exclusion may apply.
What information is shown on the railroad retirement
benefit statements sent to annuitants in January?
One statement, the blue and white Form RRB-1099 (or black and white
Form RRB-1042S for nonresident aliens), shows the amount of any social
security equivalent or special minimum guaranty payments made during
the tax year, the amount of any such benefits that an annuitant may
have repaid to the Board 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.
The other statement, the green and white Form RRB-1099-R (for both
U.S. citizens and nonresident aliens), shows the total amount of
contributory railroad retirement benefits over and above social
security equivalent benefits, plus any noncontributory vested dual
benefits and/or supplemental annuities paid to the annuitant during
the tax year, as well as the amount of an employee's railroad
retirement payroll tax contributions. Also shown is the amount of
federal income tax withheld from these payments. In addition, the
statement reflects the amount of any benefits that an annuitant may
have repaid to the Board during the tax year. However, this amount has
not been 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 Board.
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.
Copy B and/or Copy 2 of Form RRB-1099-R needs to be submitted with
a 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.
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?
Since 1993, only the total amounts of contributory railroad
retirement benefits paid over and above social security equivalent
benefits are shown. Tax-free amounts are no longer subtracted.
Annuitants may continue to use the tax-free amounts previously
calculated by the Railroad Retirement Board under the General Rule
method if they wish to do so. However, use of this Board-computed
tax-free amount precludes using alternate tax treatments, such as the
Simplified General Rule, that may be more advantageous in some cases.
Annuitants wishing to consider alternate tax treatments should refer
to the IRS-1040-1 package issued each year and/or IRS Publication 575,
Pension and Annuity Income. Annuitants preferring to compute
the tax-free amount themselves under the General Rule method, or to
verify the Board's figures, should refer to IRS publication 939, General
Rule for Pensions and Annuities.
What other information is included with the railroad
retirement benefit statements?
Included with the statements are detailed explanations of all the
items on the statements and the toll-free telephone number of the
Internal Revenue Service.
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 their
social security and railroad retirement social security equivalent
benefits are to be considered as taxable income.
Additional information on the taxability of these benefits can be
found in IRS Publication 915, Social Security and Equivalent
Railroad Retirement Benefits.
Are the residual lump sums, lump-sum death benefits or
separation allowance lump-sum amounts paid by the Railroad Retirement
Board subject to federal income tax?
No. These amounts are not subject to federal income tax.
Are federal income taxes withheld from railroad retirement
annuities?
Yes, and the amounts withheld are shown on the statements issued by
the Board each year. However, an annuitant may request that federal
income taxes not be withheld, unless the annuitant is a nonresident
alien or a U.S. citizen living outside the United States.
Annuitants can voluntarily choose to have federal income tax
withheld from their social security equivalent payments. To do so,
they must complete IRS Form W-4V, Voluntary Withholding
Certificate, and send it to the Board. They can choose
withholding from the social security equivalent payments at the
following rates: 7 percent, 15 percent, 28 percent, or 31 percent.
Annuitants who wish to have federal income taxes withheld from the
portions of their annuity over and above social security equivalent
benefits must complete a tax withholding election on Form RRB W-4P, Withholding
Certificate For Railroad Retirement Payments, and send it to the
Board. An annuitant is not required to file Form RRB
W-4P. If that form is not filed, the Board will withhold taxes only if
the combined portions of his or her annuity over and above social
security equivalent benefits exceed $1,241.33. In that case, the Board
withholds taxes as if the annuitant were married and claiming three
allowances.
How is tax withholding applied to the railroad retirement
benefit of nonresident aliens?
Under the Internal Revenue Code, nonresident aliens are subject to
a 30-percent tax on income from sources within the United States not
connected to a U.S. trade or business. The 30-percent rate applies to
all annuity payments exceeding social security equivalent payments and
to 85 percent of the annuity portion treated as a social security
benefit. The Code also requires the Board to withhold the tax. The tax
can be at a rate lower than 30 percent or can be precluded entirely if
a tax treaty between the United States and the country of residence
provides such an exemption, and the nonresident alien completes and
sends Form RRB-1001, Nonresident Alien Questionnaire, to the
Board. Form RRB-1001 is sent by the Board 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, effective January 1, 2000, a nonresident
alien must include his or her United States taxpayer identifying
number on Form RRB-1001. Otherwise, any tax treaty exemption claimed
on the form is not valid. The majority of nonresident aliens receiving
annuities from the Board are citizens of Canada, which has a tax
treaty with the United States.
If an Canadian citizen claims an exemption under the tax treaty, no
tax is withheld form the annuity portion equivalent to a social
security benefit and a withholding rate of only 15 percent is applied
to those annuity payments exceeding social security equivalent
payments.
Additional information concerning the taxation of nonresident
aliens can be found in IRS Publication 519, U.S. Tax Guide for
Aliens.
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 Board sends Form 1099-G to individuals, showing
the total amount of railroad unemployment benefits paid during the
previous year.
Are sickness benefits paid by the Railroad Retirement Board
subject to federal income tax?
Sickness benefits paid by the Board, 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 Board
sends Form W-2 to affected beneficiaries.
Does the Board withhold federal income tax from
unemployment and sickness benefits?
The Board withholds federal income tax from unemployment and
sickness benefits only if requested to do so by the beneficiary.
Are railroad retirement and railroad unemployment and
sickness benefits paid by the Board subject to state income taxes?
The Railroad Retirement and Railroad Unemployment Insurance Acts
specifically exempt these benefits from state income taxes.
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 usual maximum
amount, the employee must ask that employer to refund the excess. It
cannot be claimed on the employee's return.
Can a railroad employee who also worked 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 Railroad Retirement Board
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 Board is shown on Form W-2 issued to
affected beneficiaries. Employees who had tier I taxes withheld from
their supplemental sickness benefits 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.
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