Railroad Retirement Information

Year 2001 Railroad Retirement and Unemployment Insurance Taxes

While regular railroad retirement payroll tax rates are not changed for the year 2001, the amounts of compensation subject to these Federal payroll taxes on covered rail employers and employees are scheduled to increase in January 2001 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 for withholding and reporting purposes and 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
will increase to $80,400 in 2001 from $76,200 in 2000. 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, under current law, 16.10 percent on employers, will increase to $59,700 from $56,700.

In 2000, the regular railroad retirement tax on an employee earning $76,200 was $8,607.60 and the employer's regular railroad retirement tax on such an employee was $14,958. In 2001, the railroad retirement tax on an employee earning $80,400 will be $9,075.90 compared to $6,150.60 under social security, and the employer's tax will be $15,762.30.

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 2000 has been 26½ cents per work-hour.

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 $1,050 in 2001, up from $1,005 in 2000. 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. Since the accrual balance of the Railroad Unemployment Insurance Account was $103 million on June 30, 2000, which was less than the indexed threshold of $112 million, a surcharge of 1.5 percent will be added to the basic tax rates in 2001, but not so as to increase the
maximum 12 percent rate.

Consequently, in 2001, the unemployment insurance tax rates on railroad employers 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 $1,050.

The 1.5 percent surcharge will not apply to new employers in 2001, and new employers will initially pay a tax rate of 2.59 percent, which represents the average rate paid by all employers in the period 1997-1999.

For 76 percent of covered employers, the unemployment insurance rate assessed will be 2.15 percent in 2001, which is $22.58 per month for each employee with earnings of $1,050 or more per month, and 9 percent will be assessed a rate of 12 percent, which is $126 per month for each employee with earnings of $1,050 or more per month.

Railroad Retirement Benefit Increases

Railroad retirement annuities, like social security benefits, increased in January 2001 on the basis of the rise in the Consumer Price Index (CPI) during the 12 months preceding October 2000.

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 3.5 percent, which is the percentage of the CPI rise. Tier II benefits increased by 1.1 percent, which is 32.5 percent 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 2001, the average regular railroad retirement employee annuity increased $37 a month to $1,418 and the average of combined benefits for an employee and spouse increased $53 a month to $2,043. For aged widow(er)s, the average survivor annuity increased $25 a month to $851.

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.

For those beneficiaries covered by Medicare, the basic Part B premium generally deducted from monthly benefits increased from $45.50 to $50.00 in 2001.

In late December, annuitants received letters from the Railroad Retirement Board providing a breakdown of their increased annuity rates.

Retiree Earnings Limits to Rise

Railroad retirement annuitants who are under full retirement age and who work after retirement can earn more in the year 2001 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.

Legislation passed in April 2000 eliminated earnings deductions for those of full social security retirement age (age 65 in 2001). Deductions, however, remain in effect for the months before the month of full retirement age during the calendar year of attainment.

For those under age 65 throughout 2001, the exempt earnings amount rises to $10,680 from $10,080 in 2000. For beneficiaries attaining age 65 in 2001, the exempt earnings amount rises to $25,000 in 2001 from $17,000 in 2000 for the months before the month age 65 is attained.

For those under age 65, the earnings deduction is $1 in benefits for every $2 of earnings over the exempt amount. For those attaining age 65 in 2001, the deduction is $1 for every $3 of earnings over the exempt amount in the months before the month age 65 is attained.

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 non- railroad 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 reduction of 50 percent. This earnings restriction 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 non-railroad employer or other post-retirement employment.

Special work restrictions applicable to disability annuitants do not change in 2001.

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

RRB Offers First Internet Transactions

Railroad retirement beneficiaries and rail employees can now access a number of new Internet services through the U.S. Railroad Retirement Board's website at www.rrb.gov. The services available include requests for:

Statements of individual railroad service and compensation history
Replacement Medicare cards
Duplicate benefit information statements for income tax purposes
Annuity rate verification letters

Individuals accessing the RRB's website for these services will be asked to complete and submit an on-line form. The agency is utilizing the most secure encryption technology available to ensure all information it receives through the Internet remains confidential and safe from unauthorized access. Upon receipt, the RRB will process the item requested and mail the material to the individual's address of record. As an additional security feature, if an address provided on the electronic form does not match the address in the agency's computer systems, the item will be forwarded to the RRB's nearest field office which will contact the individual to ensure delivery to the correct address.

While these same services are available through the RRB's toll-free automated Help Line at 1-800-808-0772, or through any of the agency's 53 field offices nationwide, this marks the first time the agency has made such transactions available through the Internet. AccessRRB, a new section on the RRB's website, outlines plans for additional services and provides a description of the security features that will be employed. Also included is an Internet Customer Survey to allow visitors to provide feedback on the types of services they would like to see the RRB offer over the Internet.

An independent federal agency headquartered in Chicago, the RRB administers the $8 billion-a- year benefit programs provided under the Federal Railroad Retirement and Unemployment Insurance Acts covering the nation's railroad workforce and their families.